Carbon Pollution and Social Cost

Laurie Johnson, Chief Economist, Climate and Clean Air Program, Washington, DC

Last week the US Office of Management and Budget (OMB) invited additional comment on the government’s “social cost of carbon” (SCC), an estimate of climate change damages resulting from carbon pollution. The invitation comes after a recent update provoked intense backlash by the fossil fuel lobby against its use.

Couching their attack in terms of process issues and imprecision in the estimate, polluters accused the Administration of secretly manipulating and inflating the SCC in order to justify stricter standards on carbon pollution. They demanded that any new clean air standards ignore SCC benefits, i.e. essentially to count any benefits of reduced climate change as zero.

While ostensibly about process and imprecision, the attack is really about stopping the Environmental Protection Agency (EPA) from implementing protective carbon standards to reduce risks of catastrophic climate change; it comes after numerous bills aimed at accomplishing the same goal failed to go anywhere in Congress.

The update did not involve any change in how the government calculated the SCC. Its estimate had been used in over two dozen rulemakings, with multiple opportunities for comment on the methodology used to derive it. The government simply replaced outdated versions of the economic models it used with newer versions, published independently in the academic literature to reflect more recent climate science.

What’s all the fuss then? Why would a seemingly routine best-practice exercise for cost benefit analysis create such an uproar?

The answer is simple: with climate science progressing rapidly and the costs of carbon pollution growing increasingly more severe and apparent, the estimate increased by approximately 50%. At the same time, for the first time ever, forthcoming rules will limit carbon pollution coming from the largest source of these emissions: existing power plants. These plants account for fully 40% of carbon pollution, representing a very large source of profits for the fossil fuel industry.

Herein lies the rub: it turns out that the SCC tips the scale against fossil fuels in favor of cleaner energy. Once you add climate change costs (as partially measured in the SCC) to the cost of electricity generation, cleaner energy is cheaper to society than dirty. If the new rules sufficiently consider climate costs, the logical regulatory outcome spells further growth in the clean energy economy and reduced profits for the fossil fuel industry.

For all the fanfare about the Administration supposedly trying to manipulate the SCC, the real concern of opponents is not process or academic rigor. It is about protecting their own bottom line, which matters more to them than our children and grandchildren’s futures.

Photo Credit: Social Cost of Carbon/shutterstock