(Bloomberg Opinion) -- President-elect Joe Biden’s transition team has announced its four top priorities, and no surprise, climate change is among them. For that problem, the social cost of carbon is the straw that stirs the drink.
It’s the most important number you’ve never heard of.
That number is designed to reflect the monetary equivalent of the damage done by a ton of carbon emissions. For that reason, it is fundamental to decisions about the stringency of coming regulations from the executive branch — governing the fuel economy of cars and trucks, emissions limits for power plants, energy efficiency requirements for appliances and much more.
If the social cost of carbon is set high, we’re going to see aggressive regulations, significantly denting the risk of climate change. If the social cost of carbon is set low — well, not so much.
In 2009, the administration of President Barack Obama said that the social cost of carbon would be around $52 in 2020. In 2017, President Donald Trump and his appointees slashed that figure to somewhere between $1 and $6.
The gap, surprisingly, wasn’t about politics, at least not in any simple sense.
Most of the difference depended on different answers to one question: When we consider the damage done by a ton of carbon emissions, should we consider the damage to the entire world, or just to the U.S.?
The Obama administration chose the global measure. The Trump administration chose the domestic measure.
There are at least two reasons to think that the Obama administration was right. First: If American institutions and American companies are causing harm to people elsewhere — in Germany, France, India, Australia and New Zealand — there are moral reasons to consider that harm when deciding whether to scale back U.S. emissions. Should Americans just ignore the rest of the world?
Second: In terms of national self-interest, there are powerful reasons to use the global figure. If every nation uses the domestic figure, Americans are going to be badly hurt. Emissions are growing all over the world, particularly in China, and the only way to protect Americans is to take steps to ensure that all nations take account of the global harm in setting their emissions limits.
If the U.S. uses a domestic figure, that’s not likely! The Obama administration’s use of the global measure of the social cost of carbon helped inspire other nations to do the same thing — and played a role in the complex negotiations that led to signing of the Paris climate change agreement in 2016.
If the Biden administration chooses to use the global number, stringent greenhouse-gas regulations will look far more appealing than they have under Trump, because they will deliver much larger monetized benefits. But the new administration will undoubtedly be asking whether that $52 figure is the right one — and exactly where it comes from.
The answer is this: Using science and economics, researchers in various nations have created “integrated assessment models,” by which they do the best they can to assess the damage likely to be done by climate change, and to turn that damage into monetary figures. One such model comes from Yale University’s William Nordhaus, who won the Nobel Prize in 2018, in part for his work on this topic.
To calculate the social cost of carbon back in 2009, the Obama-Biden administration largely built on the three leading models, and essentially averaged them. Notably, the Trump administration did not publicly disagree with that particular decision.
But researchers have learned a lot since 2009, and there is reason to think that the Obama-Biden numbers were too low. According to one technical account, it should be doubled. According to another, it should quadrupled. In 2017, the National Academy of Sciences released a defining report, questioning some of the decisions made by the Obama administration and calling for frequent updating.
To come to terms with the higher projections, the Biden administration will have to ask an assortment of questions. What do we now know about the likely damage? How should we treat damage that would occur in the future? What’s the right treatment of uncertainty? Because there is so much we don’t know, maybe we should build in a margin of error, which would lead to a higher number.
These are technical questions. They mostly involve science and economics. But it’s clear that the Trump administration’s figure for the social cost of carbon is indefensibly low, and that we need a better one in a hurry. This particular straw will stir an exceptionally important drink.
The document says $42 in 2007 dollars, which is about $52 today. Disclosure: As administrator of the White House Office of Information and Regulatory Affairs, I helped convene the technical working group that produced the original number.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Cass R. Sunstein is a Bloomberg Opinion columnist. He is the author of “Too Much Information” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”
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