The economic impacts of climate change are likely to be more than three times higher than what economists and US government officials have previously expected, according to a major analysis published Sept. 1 in the journal Nature.
The “social cost of carbon” (SCC) is a metric used by the government to evaluate the costs and benefits of climate policies and investments in infrastructure. It projects the costs of flooding, crop failure, higher bills for air conditioning, and loss of life under different future climate change scenarios, and then translates that estimate into a cost per ton of CO2 emissions.
The SCC is an inexact measure, but it’s a critical tool for policymakers and is often cited in legal and political battles over clean energy spending and greenhouse gas regulations. If the cost is very low, then any spending required to cut emissions probably isn’t worth it. If it’s high, then more aggressive climate policies are economically justified.
Under president Barack Obama, the US’s official SCC was about $51. President Donald Trump slashed artificially that to about $4. President Joe Biden quickly re-established the Obama figure, and tasked a team of economists to develop a new estimate, a process which is ongoing. The Nature study, which was conducted independently by two dozen researchers from several think tanks and top-tier universities, is meant to inform the government’s analysis. It pegs the SCC at $185.
Why the previous social cost of carbon was much too low
The new estimate is much higher for several reasons. Trump’s estimate was limited to impacts in the US, whereas Biden’s and the new estimate are global (which makes more sense, given that the US has an economic stake in global supply chains, in addition to ethical obligations to consider impacts outside its borders). The new estimate also incorporates updated models of the damages themselves, reflecting the latest science on how severe climate change is likely to be and the implications for crop yields, health impacts, and other aspects of life and the economy.
Most importantly, the new estimate uses a lower “discount rate,” the rate by which future damages are given less value than current costs. (In other words, a dollar saved today is worth more than one saved tomorrow). Trump’s discount rate was 7%; currently the rate is 3%. The new estimate uses a rate of 2%, which the authors say more closely matches real interest rates and changes in the value of the dollar over time.
The Biden administration has not announced when it will update its official SCC. If it lands on a number close to what the Nature researchers recommend, it would help the administration make a stronger case on everything from new methane regulations to buying electric vehicles for government fleets.