On the Ground: The Social Cost of Carbon

Environmental economists have long sought a single metric to encapsulate the sprawling social, economic, and environmental damages related to greenhouse gas (GHG) emissions. The social cost of carbon (SCC), an estimate of the economic harm caused by each additional ton of carbon dioxide, may well be it. Calculated using computer models that draw on scholarship in climate science, agriculture, demographics, public health, biodiversity, and many other fields, the SCC allows policy makers to evaluate the economic consequences of emissions and make informed legislative decisions about climate change. Read on to learn more about what some consider the most important number you’ve never heard of.

In the 2000s, government agencies used a wide variety of metrics to evaluate carbon emissions’ societal costs. In 2007, the Supreme Court ruled that the Environmental Protection Agency (EPA) must regulate GHGs as pollutants under the Clean Air Act, triggering the agency’s mandate to conduct cost-benefit analyses. In 2009, an interagency group representing 11 federal agencies established a single national standard for the SCC.

Assistant professor of energy and resources David Anthoff co-develops the Climate Framework for Uncertainty, Negotiation, and Distribution (FUND), one of three integrated assessment models (IAMs) used by the EPA and other organizations, to calculate the SCC. Such models essentially represent how society and climate interact, by bringing together variables from physics, economics, and numerous other fields. FUND can run game theory investigations into global environmental agreements or complex cost-benefit analyses of GHG policies, among other functions.

The models act as synthesizing machines, processing enormous amounts of research data related to climate science, biodiversity, economic growth, population forecasts, and other variables. IAMs then predict future emissions and climatic consequences, such as sea level rise, and assess their economic impacts on health, agriculture, energy consumption, and other economic sectors. Finally, IAMs convert predicted damages into the present-day “cost of carbon” for policy makers.

In 2015, Anthoff broke the FUND code down into its components to create simpler, more accessible and transparent tools. He built the computational platform Mimi.jl to be open-source and free to all. Since no single team can track and update every variable—ranging from water resources to population trends—decentralization is critical. It allows researchers around the world to independently utilize, build on, and iterate on the models.

In 2015, the federal government asked the National Academies of Sciences, Engineering, and Medicine (NAS) to review the latest research on SCC models. In response, NAS formed a small expert panel—on which Rausser College of Natural Resources professors Max Auffhammer and Inez Fung served.

Governments set parameters that determine how the SCC is calculated, and even minor changes can influence regulation greatly. For instance, the Trump administration changed two metrics in federal assessments: one change limited the geographic scope to value only climate damages within the U.S., while the other gave an unrealistically low estimate of the costs of climatic disruptions in the distant future. These changes dropped the SCC from $42 per ton under the Obama administration to $1 per ton, effectively gutting the economic incentives for policy action.

On day one of his administration, President Joe Biden signed an executive order to reevaluate the SCC and create a new standard. In a February commentary in the journal Nature,  Anthoff joined other experts to offer SCC recommendations to the Biden administration, including the adoption of the Obama administration–era metrics, an update to forecasts for economic and population growth, and modernized measures for calculating how climate damages affect human welfare.

Most SCC calculations don’t address inequities between communities or ways that climate damages cause greater welfare losses in poorer regions of the world. Anthoff’s lab studies approaches for equity weighting, a method of factoring social welfare and equity concerns into cost-benefit analyses and models.

Anthoff has also led groundbreaking research into methane, a potent greenhouse gas with a global warming potential about 34 times higher than CO2’s. In April, he published a study in Nature  that evaluates methane’s social cost and incorporates equity weighting into the models.

Learn more about the SCC

The Breakthroughs virtual event series offers a deeper dive into one of the magazine's stories each issue. At our inaugural event, David Anthoff joined a discussion on the social cost of carbon with Agricultural and Resources Economics professor Maximilian Auffhammer and Energy and Resources Group PhD candidate Lisa Rennels. Watch a recording of the event below: