We know that emitting carbon dioxide into the atmosphere causes climate change. We also know that climate change is causing damage, and that it will cause even greater damage in the future. This damage is called the “Social Cost of Carbon.” But how much is it? Can anybody put a dollar sign on the Social Cost of Carbon?

Source: IWGSCC, Technical Update of the Social Cost of Carbon for Regulatory Analysis, 2013.

That is just what a group called the Interagency Working Group on Social Cost of Carbon (IWGSCC) tries to do. First the numbers, then some background on what it means. In the table at right, the left column represents years in which a ton of CO2 might be emitted. The next three colums give the estimated Social Cost of Carbon, assuming 3 different inflation rates. The far right column represents similar information as the 3.0% Discount Avg column, except instead of taking the average damage cost estimate, they took the 95th percentile. The idea is that, if inflation is 3.0%, the odds are 95% that the cost of the damage will be no higher than the values in this column.

The 3% discount rate is the one the author’s adopt as their most likely scenario. So, to say this data in plain English:

The most plausible estimate of the damage caused by each metric ton of carbon dioxide emitted into the atmosphere in 2010 is $33. The damage caused by each metric ton emitted in 2015 will be $38, and for each ton emitted in 2050 it will be $71.

In 2010, the United States emitted an estimated 5,736.4 million metric tons of CO2. At $33 per metric ton, that equates to $189.3 billion. The GDP of the United States in 2010 was $14,958 billion, so the damage is roughly equal to 1.3% of our total economic output.

Why is this estimate important? Policy makers need to justify the costs of the programs they mandate by pointing to the benefits gained or costs prevented. The report suggests that the United States could spend up to $189 billion per year to reduce CO2 emissions, and be paid back by the damage prevented.

This report is an update of the first IWGSCC report, issued in 2010. The cost estimates increased significantly between reports because of increased knowledge about climate change and improvements in the computer models used to make the estimates. There is still considerable uncertainty here, but the IWGSCC estimate may be the best estimate available.

Sources:

Interagency Working Group on Social Cost of Carbon, United States Government. (2013) Technical Support Document: – Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – Under Executive Order 12866. http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf.

For U.S. greenhouse gas emissions: EPA > Climate Change > Emissions > National Data, http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

For U.S. GDP: Bureau of Economic Analysis > National Economic Accounts > Current Dollar and “Real” GDP (Excel Spreadsheet). http://www.bea.gov/national/index.htm#gdp.