The Social Cost of Carbon: How to Do the Math?

New York Times 18 September 2012.

How much are we as a society willing to pay today to prevent the climate-related costs of carbon dioxide emissions in the future?

In 2010, 12 government agencies working in conjunction with economists, lawyers and scientists, agreed to work out what they considered a coherent standard for establishing the social cost of carbon. The idea was that, in calculating the costs and benefits of pending policies and regulations, the Department of Transportation could not assume that a ton of emitted carbon dioxide imposed a $2 cost on society while the Environmental Protection Agency plugged 10 times that amount into its equations.

Instead, they decided, all of the agencies would use the same baseline of $21 per ton as the standard in monetizing the social costs of the seven-plus billion tons of carbon generated by American power plants, vehicles and factories each year…

(Editor’s note: In the end the article argues that the effect of unsustainable business-as-usual behaviour today on future generations is not an accounting exercise, it is an ethical and values based issue. We need to do what is right, not what is cost-effective. By comparison, the proposed South African carbon tax is R120/tonne of CO2 equivalent, albeit with phase-in rebates which effectively will postpone the tax until 2020, “to lessen the impact” on affected businesses. One wonders what the tax is for if not to affect polluting industries?)