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Why the Social Cost of Carbon Is Critical for America to Make Sound Policies

This post is part of WRI’s blog series, The Trump Administration. The series analyzes policies and actions by the administration and their implications for climate change, energy, economics and more.

According to reports, President Trump is poised to sign a new directive dropping climate change as a consideration when evaluating government agencies’ actions. The move would also reconsider the government’s use of a metric known as the “social cost of carbon,” which helps analysts assess the economic benefits of climate action and economic costs of inaction.

The social cost of carbon (SCC) assigns a dollar value to the benefits from reducing carbon dioxide emissions and addressing climate change. Examples of such benefits are wide ranging, from preserving crop yields and protecting human health to limiting the risk of flooding to coastal properties. With these estimates in hand, agencies can determine if the benefits from efforts to curb carbon pollution – such as standards calling for more efficient appliances or vehicles -- are worth the investment.

If agencies stop using the SCC, it would prevent the government from using the best available science to inform their decisions and from holding polluters accountable for damages caused by carbon dioxide emissions.

How the Social Cost of Carbon Came to Be

In 1981, President Reagan required federal agencies to quantify the benefits and costs of major regulations before deciding whether to impose them and how stringent to make them. Federal agencies began estimating SCCs following a 2007 Supreme Court ruling that led to the U.S. government regulating carbon dioxide emissions as an air pollutant.

In 2009, the Obama administration brought together a group of technical experts to develop a single set of U.S. government SCC estimates based on the best available science and economics. Because estimates of the SCC are highly uncertain—it requires forecasting how changes in emissions affect the climate, how changes in the climate affect economies around the world, and the value of climate damages occurring around the world over centuries—the U.S. government recommends using a wide range of values, from $11 to $105 dollars per ton of CO2 in 2015.

Why We Need the Social Cost of Carbon

Eliminating the use of the SCC in federal regulations would squelch agencies’ ability to follow President Reagan’s guidance and conduct comprehensive cost-benefit analyses for regulations impacting carbon emissions. After all, without quantifying the benefits, how can we hope to compare the benefits of emissions reductions with the associated costs?

Worse still, the Trump administration could continue using benefit-cost analysis to make regulatory judgments with the assumption there is no value in curbing carbon emissions, despite the mountain of scientific evidence that shows otherwise. Virtually all regulations would then artificially appear too costly to justify, leading to a situation where polluters have license to spew carbon into the atmosphere with no accountability for the damages they cause.

The courts will likely find moves eliminating the SCC to be illegal, because they have ruled (and subsequently affirmed) since 2007 that “the value of carbon emissions reduction is certainly not zero.” In 2016, a Federal Court of Appeals struck down a challenge to the U.S. government’s SCC estimates. The Trump administration will have the challenging task of finding support for such a drastic change to the current U.S. government estimates, while evidence points in the opposite direction. In a recent poll of 1,100 experts on the economics of climate change, 69 percent said the U.S. government’s current “central SCC” estimate of $36 per ton is too low for the benefits of emissions reductions, while less than 10 percent said it was too high.

Following years of study, the National Academy of Sciences, Engineering, and Medicine recently released a report outlining ways to improve SCC estimates and research priorities going forward. Rather than ditching the SCC, the Trump administration could use the findings of this report as a basis for continuing the constructive discussion over the benefits of reducing carbon dioxide emissions and avoiding the risks from climate change. In contrast, eliminating the use of the SCC in federal rulemaking would ignore the recommendations of the country’s top experts and push the Trump administration into a court battle that it has a high likelihood of losing.

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