Government Lowballing 'Social Cost of Carbon' in Regulations, Economists Charge

Passage of the long-awaited U.S. Senate climate and energy bill released weeks ago would finally put a national price on carbon. Now lawmakers are working to pin down another price to ensure that coming regulations actually reduce emissions: the "social cost of carbon."

The social cost of carbon is an economic analysis that weighs the cost of cutting back on climate-warming carbon dioxide against the benefits. In practice, the calculation applies a price on each ton of CO2 released based on its future harm to humans.  As Washington tries to incorporate climate change into rules and regulations across the government, this elusive price is expected to influence many energy and environmental policy decisions to come.

The government's first attempt at setting a social cost, however, is deeply flawed, according to a new report by the Economics for Equity and the Environment Network (E3), a nationwide group of economists focused on environmental policy.

According to the report authors, an opaque and mathematically questionable process led a collection of U.S. government agencies to assign a social cost of carbon estimate of $21 per ton in 2010 — equivalent to about 20 cents per gallon of gasoline.

That price, the authors say, is "far too small a price incentive to prompt substantive mitigation measures."

"If widely adopted," the report says, "this low estimate of the SCC could result in ineffectual regulations that would barely reduce U.S. emissions, if at all."

The Government's Questionable Process

The government's calculations were done by the Interagency Working Group on Social Cost of Carbon, a group that includes the White House Council on Environmental Quality, the Department of Agriculture, the Environmental Protection Agency (EPA) and a number of other government bodies.

According to Frank Ackerman, one of the report's authors and the director of the Climate Economics Group at the Stockholm Environment Institute's Boston-based U.S Center, the government estimate was tacked on as an appendix on an obscure document, and the working group did not include any specific author names or contact information.

"It is now taken as representing U.S. government policy, but it is apparently a policy that nobody really wanted to have an individual name on," Ackerman said in a webinar on his research on Monday.

He added that the three economics models used to arrive at $21 per ton all have substantial flaws. Among them are underestimates of potential damages associated with modest amounts of warming, as well as negative effects that climate change is predicted to have on human health. 

"The estimates depend very much on what we think the damages will be as temperature rises," Ackerman said, noting that most scientists think keeping the world below two degrees Celsius of warming is crucial to avoid some of the most catastrophic effects of climate change.

"These models have a very different view...[They] suggest that two degrees is not really a big deal."

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