President Biden on Friday dramatically altered the way the U.S. government calculates the real-world cost of climate change, a move that could reshape a range of consequential decisions, from whether to allow new coal leasing on federal land to what sort of steel is used in taxpayer-funded infrastructure projects.
The administration plans to boost the figure it will use to assess the damage that greenhouse gas pollution inflicts on society to $51 per ton of carbon dioxide — a rate more than seven times higher than that used by former president Donald Trump’s administration. But the number, known as the “social cost of carbon,” could reach as high as $125 per ton once the administration conducts a more thorough analysis.
In a recent interview, Biden’s national climate adviser, Gina McCarthy, said the administration is setting an initial price to inform its policies “and then work more diligently about what the actual cost might be as we move forward, and get the information that we need to be able to do that.”
The ultimate figure will be incorporated into decisions across the federal government, including what sort of purchases it makes, the kind of pollution controls it imposes on industry and which highways and pipelines are permitted in the years to come. Just as important, the move sends a powerful signal to the private sector and to ordinary Americans that the choices the country makes now could lock in disastrous consequences on both current and future generations — or help to avert the worst impacts.
“A new social cost of carbon can tip the scales for hundreds of policy decisions facing the federal government,” said Tamma Carleton, assistant professor at the Bren School of Environmental Science & Management at the University of California at Santa Barbara. “Any policy, project or regulation that lowers emissions will now have a higher dollar value, reflecting the many benefits future Americans enjoy when emissions fall today.”
“Confronting climate change will cost money,” she said. And putting a higher price on global warming’s damages, she added, “highlights the large hidden costs of doing nothing.”
While this is not a new tax that consumers would have to pay, it would make it harder for fossil fuel projects to win government approval by factoring in their long-term costs to society.
For example, if the Trump administration had applied the Obama-era calculation to its rollback of federal mileage standards, the costs of that rule would have far outweighed the benefits and would have been much harder to justify. And any federal coal leasing in the Powder River Basin would be unlikely to win approval: University of Chicago professor Michael Greenstone noted that the climate damages associated with that mining “are six times larger than the market price of that coal.”
There is mounting evidence that climate change impacts are already costing the United States and other countries billions of dollars each year, but policymakers are not fully accounting for these damages when they approve projects or make purchases that will cause more planet-warming pollution. Wildfires, more intense storms, increased flooding and heat waves linked to rising greenhouse gas emissions are already taking their toll in the United States and overseas, and scientists expect those calamities to grow worse over time.
The National Oceanic and Atmospheric Administration, for example, has estimated that last year there were “22 separate billion-dollar weather and climate disasters across the United States, shattering the previous annual record of 16 events.” If the world does not curb its overall carbon output, according to a recent academic paper, future warming could raise the average mortality rate in Los Angeles roughly 20 percent by the end of the century.
For many Americans, the costs are already clear.
Herve Hamon directs planning and zoning for Dorchester County, Md., which recently published a plan saying sea-level rise “will lead to the failure of conventional septic systems, contaminated drinking water supplies, loss of productive agricultural land and damage to seafood processing infrastructure.” By 2050, the plan projects, the cost of flood damage will rise from $11 million to $66 million, and “790 buildings are expected to be constantly wet.”
Hamon and his colleagues are struggling to figure out how to maintain road infrastructure to waterfront homes given the expanding water on the county’s south side, even as more people want to build there. If national policymakers can curb greenhouse gas emissions by putting a price on their impact, he said in an interview, it could reduce the county’s sea-level-rise threat.
“For us, having anything that would slow down the degradation would be fantastic,” he said. “The less it rises the better it is, and the longer the county will function.”
California Insurance Commissioner Ricardo Lara, whose state suffered several billion dollars in wildfire-related losses last year, called the move “fantastic” in an interview, saying the approach allows elected officials to “measure climate risk in a way that people can actually understand, and in a way that can shape policy.”
But many industry groups remain nervous about putting a higher price tag on carbon emissions, and are warning the administration it needs to listen to them before settling on a final figure for doing so. On Tuesday, a coalition of business groups — including the American Chemistry Council, the Council of Industrial Boiler Owners, the Portland Cement Association and the U.S. Chamber of Commerce — wrote White House officials to say they expected them to provide “ample channels and opportunities for public and stakeholder input” as they update the government’s cost-benefit approach.
Nick Loris, an energy economist at the conservative Heritage Foundation, criticized the accounting mechanism as an ineffective way to pursue climate policy, in part because changes in assumptions from one administration to the next can result in vastly different estimates.
“It’s concerning to me that a figure that has such wild swings … could ostensibly determine whether or not the benefits of a project outweigh the costs,” Loris said. “It doesn’t give you any policy or regulatory certainty, or really any confidence in rulemaking if the costs can swing that wildly.”
Sen. John Barrasso (R-Wyo.) called the move Friday “a backdoor carbon tax” that would lead to higher energy costs. “The administration is laying the traps to justify punishing new regulations," Barrasso said in a statement. "Since the president can’t rationalize the crippling costs of his climate policies, he needs to exaggerate the benefits.”
The federal government first started incorporating the cost of climate impacts into its decision-making under President George W. Bush, after a federal court invalidated its mileage standards on the grounds that they did not address the damages associated with carbon dioxide. President Barack Obama made the issue a priority, establishing an interagency working group that set the number at $37 per ton by the end of his presidency.
In 2017, the National Academies of Sciences, Engineering, and Medicine recommended that the federal government update the methods it uses to estimate the real-world, economic impacts of climate change. But that same year, the Trump administration disbanded the federal working group that had been created to study those figures, and slashed the carbon price to between $1 and $7 per ton by excluding climate damages projected overseas.
Even as the Trump administration backtracked, Democratic-leaning states have pressed ahead.
In December, for example, New York state adopted a “value of carbon guidance” ranging between $79 and $125 that it will apply to policies and programs going forward. Colorado, Minnesota and Virginia require regulators to factor in the cost of climate damages when evaluating new power generation applications, and Illinois and Maine also incorporate this into their electricity sector policies.
“They certainly have swayed the decisions these states are making,” said Kevin Rennert, who directs Resources for the Future’s Social Cost of Carbon Initiative.
While the Biden administration has set an initial price to inform its analysis of policies ranging from gas mileage standards to purchasing, it will embark on a months-long process to determine a longer-lasting one. That price will take other factors into account, such as the fact that the poor suffer more from climate impacts than the wealthy and more recent scientific findings on climate impacts.
In the meantime, Minneapolis Mayor Jacob Frey is waiting for action. He has watched as the Minnesota climate has grown warmer and wetter, with more extreme weather. In recent years, faster snowmelts have overwhelmed sewer tunnels and landslides have caused millions of dollars in damage to local parkways.
“There have been some major changes over just the last several years that have had dramatic impact on city coffers,” Frey said. “This is a climate issue.”
And one that Minneapolis can’t tackle alone, even though it also has imposed a $42 per ton estimate for the costs of climate change.
“We’re not an island, obviously. We are impacted by what Phoenix and Cleveland and Baltimore and the entire state of Texas does. ... Carbon does not respect borders,” Frey said. That is why a federal standard is essential, he added.
“It really should be baked into every decision.”