WASHINGTON—The Obama administration has sharply increased its cost estimates for the global-warming damage caused by carbon dioxide emissions, a calculation that could significantly affect government policies about fossil fuel projects, including the controversial Keystone XL oil pipeline.
The new estimates could influence many other government actions, such as setting efficiency standards for appliances and industrial equipment and establishing emissions standards for new and existing power plants. It will also factor into the running debate on whether to impose a carbon tax or find some other way to put a price on carbon emissions.
At issue is what economists call "the social cost of carbon," a measurement of the price society ultimately pays for the damages caused by each additional ton of carbon dioxide emitted. The higher the social cost, the more economic sense it makes to impose strict but expensive emission controls.
A central estimate in the range of possibilities presented in the administration's new calculations is that each additional ton of carbon dioxide emitted in the year 2020 will cost society $43—a number that rises in subsequent years, as the mounting pollution exacerbates the problem of global warming. That estimate is about 66 percent higher than the $26 per ton cost calculated back in 2010, when the administration issued its first set of estimates.
The new price tag attempts to measure today, in dollars, the harm that will happen years, decades or even centuries in the future, as the globe heats, the seas rise, and the bill for each additional year of pollution comes due.
The estimates, completed in May, were calculated by a specialized inter-agency task force and are based on the latest, peer-reviewed scientific research. The task force relied on a set of three models developed over the years by scientists and economists trying to better understand the consequences of greenhouse gas emissions.
If the administration applies its new social-cost calculations to the emissions attributed to the oil sands crude that would be carried by the Keystone XL pipeline—a project that is still under review and needs a presidential permit to proceed—the calculation would show tens of billions of dollars in additional costs to society over the pipeline's lifetime. The pipeline's opponents say the Keystone would add to global warming by moving high-carbon fuel from the tar sands of Canada to refineries in the United States.
For years, the Environmental Protection Agency has urged the State Department to do just this kind of calculation as part of its environmental review of the Keystone project. But the State Department has never done so.
In April, in a review sharply critical of the State Department's latest draft environmental impact statement for the project, the EPA again urged this approach.
It cited estimates that the tar sands crude oil the pipeline would carry could add 19 million tons of incremental emissions to the atmosphere each year—the amount of extra pollution due to the fact that tar sands oil is dirtier than conventional oil and uses more energy to produce. Using the new carbon cost estimate, the extra emissions from the oil delivered in the year 2020 alone would impose future costs of more than $800 million in today's dollars. Every following year's emissions would add to the economic harm, and at a steadily escalating price per ton.
"If greenhouse gas intensity of oil sands crude is not reduced, over a 50 year period the additional carbon dioxide from oil sands crude transported by the pipeline could be as much as 935 million metric tons," the EPA told the State Department. "It is this difference in greenhouse gas intensity—between oil sands and other crudes—that is a major focus of the public debate about the climate impacts of oil sands crude."
Some analysts contend that the social damage costs from the Keystone would be far higher.
Oil Change International, an advocacy group that opposes the pipeline, says that if all the emissions from burning tar sands oil were counted, instead of just the extra emissions due to its being dirtier than other fuels, the social costs would run to $1 billion, $10 billion, or even more each year using the administration's old formula.
Under the new carbon calculation, the costs would be even higher.
"When it comes to the Keystone XL pipeline, however, it remains to be seen whether the Obama administration will listen to its own analysis and recognize that the costs of this pipeline are too great to ignore," the group said this week.
Many leading economists say the future costs of today's carbon emissions could indeed reach astronomical levels, depending on how social costs are estimated and which worst-case damages are cranked into the models.
In a recent report, Oil Change International said the true social cost of developing Canada's tar sands and exporting the oil through the Keystone might approach $100 billion a year.
A paper published in a special edition of the on-line journal Economics on the social cost of carbon asserted that the true social cost might be $900 a ton in 2010, rising to $1,500 per ton in 2050, wildly more than the administration estimates.