Amid the flurry of news from the recent UN climate summit COP27, the Biden administration made an overlooked announcement that could help modernize U.S. climate policy. In trying to assess how much a ton of climate pollution harms society, the U.S. government has long used a metric called the social cost of carbon. That metric places a dollar value on greenhouse gas emissions and enables government decision-makers to weigh the costs and benefits of policies that affect climate pollution.
But there’s one problem. Since the government began using the social cost of carbon under the George W. Bush administration, it has repeatedly recognized it as an undervaluation that omits known consequences of climate change. The government has thus consistently undercounted the societal benefits of reducing climate pollution when assessing regulations and other policies, tipping the scales toward polluters over people.
The U.S. Environmental Protection Agency (EPA) took a critical step to correct this problem by proposing a comprehensive update to the social cost of carbon. Consistent with the scientific and economics literature from independent researchers, the update would raise the metric’s central value from $51 to $190 for each ton of carbon-dioxide emissions in 2020.
The revision is the first comprehensive update to the social cost of carbon in nearly a decade. It implements a roadmap laid out in 2017 by the National Academy of Sciences, which offered numerous suggestions for improving the metric. The Trump administration sat on that report and instead made controversial changes to the estimate, obscuring the true costs of climate pollution and drawing a rebuke from a federal court for ignoring the best available science.
By increasing the social cost of carbon, EPA’s new draft valuations reflect the longstanding and bipartisan understanding that prior values were a conservative underestimate. When EPA first valued the social cost of carbon under the George W. Bush administration in 2008, it explained that available calculations did “not capture many of the main reasons for concern about climate change,” including risks of extreme weather, harms to wildlife, humanitarian crises and long-term catastrophic events.
Over time, experts have also recognized that the impacts of climate change are likely to be worse than projected in the models underlying the government’s previous estimates of the social cost of carbon. Dozens of peer-reviewed studies over the past decade point to higher damage estimates for key impacts such as human health and agriculture.
Newer research also shows that the government’s climate-damage figures undervalue the harms that future generations will face, due to the misapplication of the discount rate (the economic function determining how to convert future losses into present value). Recent research and data confirms that the government’s previous valuations discount effects on future generations too heavily, further driving down the social cost of carbon.
EPA’s update corrects for two of these three limitations. Following the National Academy’s recommendations, the updated estimates apply lower discount rates that reflect long-term uncertainty and account for recent theory and evidence. The new valuations therefore more appropriately value harms to future generations.
The updated estimates also apply newer damage functions that incorporate recent findings on the severity of climate change and its impacts. This update therefore reflects the extensive economic and scientific research on climate change that has been published since the values were last updated years ago.
But the problem of omitted damages remains largely unresolved, as numerous categories of climate-related damages remain unquantified in the update due to insufficient data. Accordingly, EPA recognizes that its updated valuations still likely underestimate the true cost of climate pollution.
EPA is now accepting public comments on the draft valuations and commencing a peer-review process. It will be at least several months before EPA completes these steps and finalizes any valuations. The peer-review process, in particular, offers an opportunity for independent experts to ensure that EPA’s update incorporates the best science available. So far, experts have offered high praise.
But other agencies and institutions need not wait for EPA to finalize these valuations before incorporating them into relevant processes and analyses. For instance, the numerous states that rely on the federal government’s climate-damage valuations should begin using the draft valuations where permitted by law. Other federal agencies should also consider how these draft estimates affect pending actions with significant climate effects.
Whether these values get incorporated into policymaking quickly or gradually, they represent a substantial step forward in our analysis of climate damages. Five years after the National Academy called on the government to update the metric and counter its pro-polluter bias, EPA has finally delivered. Soon, the decision-makers weighing critical policy choices will be equipped with a much more accurate tool for understanding climate impacts.
Max Sarinsky is a senior attorney at the Institute for Policy Integrity at New York University School of Law.
Peter Howard, Ph.D., is the economics director at the Institute for Policy Integrity at New York University School of Law.