Joanna M. Foster, NY Times, September 18, 2012
In 2010, 12 government agencies working in conjunction with economists, lawyers, and scientists, agreed to develop a common standard for the social cost of carbon. The reason was that, in calculating the costs and benefits of pending policies and regulations, the Department of Transportation was assuming 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 that all 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 US power plants, vehicles, and factories each year.
But a new paper published in the Journal of Environmental Studies and Sciences concludes that the costs of carbon pollution and related climate change are vastly greater — possibly two to 12 times as much. The authors argue that the federal government is not adequately taking into account the impacts of climate change on future generations.
At the heart of this debate is a disagreement about how to apply an economic concept known as the discount rate. Simply put, the discount rate is based on how much it is worth to us now to prevent that future damage. The governmental agency group looked at discount rates of 2.5, 3, and 5 percent, ultimately settling on 3 percent and putting the cost of one ton of carbon at $21. But the new study opts for discount rates of 1, 1.5, and 2 percent, ultimately putting the cost of one ton of carbon at anywhere from $55 to $266.
Read the complete article here.