Recommendations to change the U.S. Social Cost of Carbon, and possible impact for Canada

The U.S. National Academies of Science Press released an important report in January 2017, suggesting changes to the methodology of the Social Cost of Carbon (SCC), an economic metric used to measure the net costs and benefits associated with the effects of climate change- including changes in agricultural productivity, risks to human health, and damage from extreme weather events.  U.S. government  agencies such as the Environmental Protection Agency  are required by law  to estimate SCC when  proposing regulations such for vehicle emission standards or energy efficiency standards for appliances.  One of the most recent, thorough, and important applications of the U.S. Social Cost of Carbon appears in the 2015  Regulatory Impact Analysis Report for the Clean Power Plan Final Rule.    The U.S. updated the SCC to $37 U.S. per tonne of carbon dioxide in September 2015, a value often criticized as too  low, and economists continue to differ about the methodology.  A study by researchers at Stanford University, published in Nature Climate Change  (2015) estimated a more accurate  SCC of $220 per tonne – six times higher.

The January  report from the National Academy of Science, Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide  , suggests restructuring the Integrated Assessment Models framework used to ensure greater transparency, and  recognizes new research  which should be incorporated into the  models (e.g. the effect of heat waves on mortality) . It also recommends a regular 5-year updating schedule,  “to ensure that the SC- CO2 estimates reflect the best available science.”  For a summary of proposed changes and the political context, see “Scientists have a new way to calculate what global warming costs. Trump’s team isn’t going to like it” in the Washington Post  . Noting that the new report has no legal force, The Post article quotes expert reviewer Richard Revesz, Dean emeritus of the New York University School of Law: “If the metric is revised, then the incoming administration would have an obligation to explain why it’s departing from the current approach… Any changes made without adequate scientific justification would likely be struck down in court.”   But see also “How Climate Rules might Fade away”     in Bloomberg Business Week.

What are the implications for Canada?  Canada, like the U.K., Germany, France, and other countries, already uses its own Social Cost of Carbon, pegged at a $28 per tonne in 2012, according to  Canada’s  Regulatory Impact Analysis Statement issued with the vehicle emissions regulations for passenger cars and light trucks.  The Leaders Statement from the North American Leadership Summit in Summer 2016 ,  ties Canada more closely to U.S. and Mexico, when it pledges to “ … align analytical methods for assessing and communicating the impact of direct and indirect greenhouse gas emission of major projects. Building on existing efforts, align approaches, reflecting the best available science for accounting for the broad costs to society of greenhouse gas emissions, including using similar methodologies to estimate the social cost of carbon and other greenhouse gases for assessing the benefits of policy measures that reduce those emissions.”

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