The Union of Concerned Scientists (UCS) supports proposed changes to how the social cost of carbon (SCC) is calculated, suggesting that companies ought to start thinking about how their business would be affected.
- The UCS has written to the US Environmental Protection Agency (EPA), expressing its support of drafted changes to the approach used when valuing the costs of greenhouse gas emissions.
- Under the proposed changes, the SSC would almost quadruple from its current $51 per ton to $190.
- As the mounting costs of climate change are increasingly acknowledged, companies ought to assess their exposure to regulatory risks and potential litigation.
The UFC has sent a letter in response to the EPA’s drafted report on the economic valuation of carbon and other greenhouse gases. Signed by approximately 400 experts on climate science, the letter expresses the Union’s support of proposed changes that would see the SCC raised to $190 per ton.
“This update by the EPA more closely reflects the latest climate science and economics to help ensure government agencies are appropriately accounting for the damages caused by U.S. global warming emissions, and the significant benefits from cutting them,” said Dr. Rachel Cleetus, policy director and lead economist of UCS’ Climate and Energy Program.
“The mounting costs of the climate crisis are already evident in the United States and around the world and will only continue to worsen as the planet warms—a reality that must be accurately accounted for in our nation’s policies,” she continued.
Understanding the social cost of carbon
In simple terms, the SCC is the estimated monetary value placed on the economic damages that would result from each additional ton of greenhouse gases emitted into the atmosphere. Examples include the costs of rebuilding infrastructure destroyed by abnormal weather events, the losses associated with declining agricultural yields, or the price tag of vital adaptation measures.
Essentially, the SCC translates the effects of climate change into economic language, helping policymakers and other influential actors better understand the impacts of decisions that would lead to an increase or decrease in emissions. It is mostly used when conducting benefit-cost analyses, factoring climate change into the assessment of whether the benefits of certain policies would outweigh the potential costs.
Currently, the US Government uses an SCC of $51 per ton to guide its policy and investment decisions at the local, state and federal level. This value was determined via a complex process, combining the prediction of future emissions with climate modelling to calculate the impact that certain changes would have on agriculture, health, energy consumption and other aspects of the economy.
As climate science has advanced, it has become clear that the true cost of carbon is far greater than the $51 previously estimated. Following an official request from the Biden Administration, the EPA has proposed a number of changes to its calculations that would result in the SCC being increased to $190 per ton. If accepted, its revisions would also update the social costs of methane and other greenhouse gases.
The UCS confirms broad support but warns that further updates may be needed
According to the UCS letter, the revised calculations provide a far better representation of the latest climate science and economic considerations. The Union has voiced particular support for provisions that extend the range of climate impacts considered, reduce the discount rate applied to future damages and account for damages that occur at the global level.
It warned, however, that the new calculations may still underestimate the true costs of greenhouse gas emissions. Although it commended the EPA for its proposed updates, it recommended regular reviews to incorporate the latest perspectives of interdisciplinary experts and those exposed to the frontlines of the climate crisis.
“While this update is a welcome and significant step, it’s still conservative in estimating the true costs of climate change, as it doesn’t fully factor in impacts to human health, livelihoods, ecosystems, loss of cultural heritage, the significance of surpassing irreversible climate thresholds, or ways in which pre-existing socioeconomic inequities could be further exacerbated by global warming,” Dr Cleetus explained.
How would businesses be affected by an increase in the SCC?
Given the SCC’s applications in policymaking, its proposed increase could have a major impact on US businesses. At almost quadruple the original estimate, an SSC of $190 per ton would encourage decision-makers to increase their support of more climate-friendly operations, while tightening their regulation of those that are considered more costly.
A revision of the SCC would also converge with the ongoing increase in the use of litigation as a means of holding governments and companies accountable for their contributions to climate change. According to the UN Environment Programme, this trend is already providing a compelling reason for corporate and governmental actors to pursue more ambitious climate goals.
The proposed increase of the SCC would make the potential penalties of legal condemnation even more of a threat. Plaintiffs could demand greater compensation, backed by the official recognition that the damages they face should be valued higher than previously thought.
As advances in research methodologies enable emissions to be traced back to individual actors, Governments will be further motivated to develop policies that could help them to avoid these increasingly hefty liabilities.
With estimates suggesting that around 70% of the historical CO2 emissions responsible for the brunt of global warming can be traced back to the activities of just 108 companies, the actions they choose to take are likely to focus on industrial operations. As such, companies ought to assess their exposure to the regulatory risks that may emerge, while also considering the potential costs of litigation that targets them specifically.