President Trump’s decision to pull the United States out of the Paris Climate Accord and to repeal several Obama-era executive orders aimed at reducing American carbon emissions made the cost of clean energy a central point of discussion. The issue wasn’t just the price per kilowatt hour for electricity generation. Climate change supporters argued that without bold action today, burning fossil fuels could create irreparable harm to the planet and humanity in the future. This “social cost” of carbon emissions was a crucial part of the case for clean energy and efficiency standards. A new academic study, however, finds that the social cost of burning carbon is far less than the private benefit it creates.
Richard Tol, a professor of economics at the University of Sussex, is one of the world’s leading environmental economists. In a new paper, he finds that the private benefits of carbon (the heat generated, food cooked, and transportation provided) far outweigh the aggregate social costs of burning fossil fuels.
“The private benefit of carbon is large and, in most cases, much larger than the social cost of carbon. But while the social cost of carbon is tied to carbon dioxide emissions and their impact on the climate, the private benefit of carbon is not tied to fossil fuels,” Tol writes.
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“The private benefits of carbon are, really, the benefits of abundant and reliable energy or rather, the benefits of the services provided by energy, such as warm homes, cooked food, travel and transport, information and communication, and so on.”
According to Tol’s economic analysis, each tonne of CO2 emissions creates $411 of private benefits. Meanwhile, according to President Obama’s Interagency Working Group, the social cost of carbon is around $40 per ton.
“The social cost of carbon is the damage done by emitting an additional tonne of carbon dioxide,” Tol writes, continuing on to describe how, although the benefits of carbon consumption occur in the present, harms occur in the aggregate.
“Technically, the social cost of carbon is the net present value of the incremental future impact of climate due to a small change in emissions today,” he writes.
Tol analyzed data from 66 countries, taking into account energy production methods ranging from direct methanol fuel cells to burning dried cow dung. Each method of generating energy had its own market and carbon prices. Tol admits that complete data for world-wide fuel consumption does not exist. However, he believes that much of the missing data refers to fuel burned for cooking and residential heating, which would be too small to have much affect on the overall analysis.
The social cost of carbon was central to the Obama administration’s Clean Power Plan and has been used by state governments to draft energy policy. When calculating a social cost of carbon in order to gauge the plan’s economic impact, researchers drew on Tol’s work, as well as studies by William Nordhaus at Yale University and Chris Hope at Cambridge University, arriving at the $37 figure. This was one of the highest possible outcomes. Alternate studies placed the social cost of carbon as low as $11 per ton.
According to the Cost of Carbon project, a joint program from the Environmental Defense Fund, the Natural Resources Defense Council, and the Institute for Policy Integrity, the social cost of carbon is a necessary data point to defend pro-alternative energy policies.
“Decades of economic research have demonstrated that the ‘cost-free’ behavior of using fossil fuels and emitting carbon dioxide has led to an over-reliance on fossil fuels,” the project writes. “The social cost of carbon pollution removes that bias by accounting for the costs of pollution.”
However, the cost of carbon provides only half of the picture. Tol’s study helps to put the cost into perspective by comparing it to the economic benefits that burning fossil fuels creates.
For Tol, the central issue is not the political or economic wisdom of a carbon tax, but rather the value of energy itself, which allows for improvement in standards of living around the globe. He has studied the social cost of carbon for more than 10 years, updating his analysis to reflect both changes in economic estimates of the impact of climate change.
In the introduction of a 2008 meta-analysis of more than 200 studies of the social cost of carbon, Tor acknowledged that there were limits to the utility of purely economic analysis, but maintained that consideration of the economic effects was necessary.
“Few would argue that climate policy should be set by cost-benefit analysis alone,” he wrote, “but most economists would feel queasy if climate policy would drift too far from its optimum— although analysts in other disciplines are less compelled by the branch of utilitarianism that is common in economics.”
Currently the Trump administration is reconsidering the social cost of carbon formula.
“The scandal of the EPA’s calculation is that the conventional discount rates that the government (and private industry) typically uses for such forward-looking calculations all came in with climate cost numbers so low that the Clean Power Plan couldn’t be justified,” says Steven Hayward, a scholar of American public policy who has researched the science behind climate change.
Given Tol’s latest study, these calculations may be up for reconsideration.
Article by Erin Mundahl, Inside Sources