Social cost of carbon is rising: U.S.

The Washington Post

Buried in an obscure regulation on microwave ovens is a revealing change in President Barack Obama’s approach to global warming.

Last week, the Department of Energy announced an update to its energy-efficiency standards for microwaves, requiring newer models to use less power while in stand-by mode.

But the bigger action was in the fine print: The agency is now using a higher figure to calculate the climate-change benefits of the rule. That is, regulators are now assuming that it’s worth about $36 to avoid an extra ton of carbon-dioxide emitted into the atmosphere, up from the old figure of $22 per ton.

That is more than an accounting change. Without much fanfare, the Obama administration has increased its estimate of the “social cost of carbon” — its tally of how much harm carbon emissions will cause. In essence, the White House is now saying that global warming will be more damaging than previously estimated, mainly because of new data on the effects of the rise in sea level.

One upshot, experts say, is that any new federal regulations that cut carbon emissions — from new air-pollution rules for coal plants to energy-efficiency standards for microwave ovens — will have an easier time passing the government’s internal cost-benefit tests.

“The social cost of carbon is essentially used to calculate the benefit of reducing a ton of carbon dioxide,” said Jeffrey Holmstead, an energy industry attorney at Bracewell & Giuliani LLP. “So a higher number could be used to justify more aggressive regulatory measures.”

The shift comes as environmentalists have pressed the Obama administration to bypass the gridlock in Congress and use its regulatory powers to tackle climate change. The Environmental Protection Agency could, for instance, set new carbon-pollution standards for power plants and refineries.

“This move very definitely strengthens the case for the EPA taking action against the biggest sources of carbon,” said Frank O’Donnell of Clean Air Watch.

The revision was detailed in a memo from the Office of Management and Budget (OMB) dated May 31, but was not publicized by the administration.

White House officials downplayed the significance of the revision, saying only that it was a scheduled update to a calculation that the government has been making for years.

In 2010, a dozen federal agencies — from the EPA to the Department of Transportation — decided to standardize their estimates of the social cost of carbon, since they were all using wildly different figures.

It’s a tricky calculation, since it involves looking at climate models on the future effects of higher temperatures and then translating that into present-day terms. A lot depends on how much moral weight regulators decide to place on future generations.

For its most recent estimate, the interagency group plugged in newer climate models that captured the damage from sea-level rise more explicitly. Those models also project that agriculture will suffer more heavily in a hotter world.

As a result, in its central estimate, the federal government now assumes a ton of carbon dioxide emitted in 2013 does roughly $36 in damage, rather than its previous estimate of $22, with the value rising each year.

“These updated values are well within the range of mainstream estimates,” says OMB spokeswoman Ari Isaacman Astles. “Indeed, similar estimates are used by other governments, international institutions and major corporations.”

For instance, in its latest energy outlook, ExxonMobil said it expected an “implied” carbon price of about $80 per ton by 2040 — a number the company uses to plan for the future.

A few environmental economists, such as Frank Ackerman of Tufts University, have argued that the White House might even be underrating the harm caused by carbon dioxide and climate change, suggesting the social cost of carbon should be twice as high, or 12 times as high, or 45 times as high.

Either way, the actual number used makes a big difference when administration officials tally up the costs and benefits of various regulations.

The Energy Department’s microwave rule offered the first glimpse of this. Under the old social cost of carbon, the microwave standards had an estimated $4.2 billion in benefits over the next 30 years. Under the new carbon numbers, the microwave rule has an estimated $4.6 billion in benefits.

This might sound like nitpicking. But many observers expect the Obama administration to propose a variety of new efficiency standards and pollution rules in the years ahead. So a small tweak could make a big difference.