Climate change is here. It is happening right now, and it is only expected to worsen in the future. But because climate change is – at least for now – a somewhat intangible and nebulous problem, society has been slow to act and still grapples with how best to address the issue. Climate change-related policy and investments are becoming more prevalent, but decision-makers always want to know the same thing: what are the costs, and what are the benefits?  

Fortunately, we have developed a powerful tool to help evaluate decisions that impact greenhouse gas emissions. The social cost of carbon (SCC) is an estimate of the cost associated with emissions of carbon dioxide, the most abundant greenhouse gas that is driving climate change. Conversely, the SCC also provides an estimated value for the benefits of mitigating, or reducing, CO2 emissions. Because the SCC allows us to understand the price we pay for our impact on Earth’s climate, it can be used to help evaluate policy and inform decisions that will determine how much and how quickly we reduce emissions. 

The SCC assigns a concrete value, measured in dollars per metric ton of CO2, to the economic damages that would result from emitting one additional ton of CO2 into the atmosphere. The analysis accounts for an array of climate-related economic costs, including agricultural losses, increased healthcare spending, damage from sea-level rise and floods, and rising energy expenditures. The SCC modeling also incorporates a “discount rate,” which is used to convert future damages into present-day value based on how much weight is placed on impacts that occur in the future. State and federal governments, as well as the private sector, use the SCC in cost-benefit analyses that inform billions of dollars of policy and investment decisions across the world. The SCC has been used in the US to estimate the value of federal tax credits for carbon capture and storage as well as federal carbon tax legislation. It is also a primary metric in corporate environmental and sustainability accounting.  

President Biden signed an executive order in 2021 that tasked a working group with reviewing and updating the federal government’s SCC estimate. The research team decided on an interim value of $51 per tonne of CO2, a significant increase above the SCC value assigned by the Trump administration. However, the working group was aware that the methods used to estimate the SCC likely needed to be revised further to provide an accurate accounting aligned with the best available science. This conclusion, and the decision to use an interim SCC estimate, was informed by a 2017 study published by the US National Academies of Sciences, Engineering, and Medicine. This research found the federal government’s SCC estimation techniques to be outdated, and the study provided recommendations for updating SCC estimation methodology. 

In response to these findings, Resources for the Future, the University of California, Berkeley, and eight other top institutions embarked on the challenge of developing a revised methodology and producing new estimates of the SCC consistent with the leading research. The research team designed the new study to specifically address the findings and recommendations of the 2017 NASEM study. Published in Nature in September 2022, the new study represents a significant improvement to the scientific foundation of SCC estimates. Importantly, the analysis incorporates updates to long-term forecasts of population growth, economic growth, GHG emissions, and the Earth’s climate. With the new modeling and techniques, the researchers discovered an important albeit potentially unsurprising finding: policymakers, governments, and financial institutions across the world have been drastically underestimating the SCC. 

The study published an average SCC estimate of $185 per tonne of CO2, a near quadrupling of the government’s current SCC estimate of $51 per tonne of CO2. In other words, each additional tonne of CO2 emitted by humans costs society $185. 

The implications of this finding are far-reaching. They imply that society has, for decades, undervalued the true economic costs of humans’ impact on the natural environment; while we did put a price on carbon, we missed the mark and have been short-changing ourselves at the potential cost of a sustainable future.  

The research also points to an equally important silver lining: Society has been drastically underestimating the benefits of mitigating GHG emissions. Future efforts to combat climate change could be considered significantly more valuable than they are today, as a higher SCC indicates that reducing GHG emissions can be expected to result in greater benefits than previously believed. This is of critical importance for organizations like Citizens’ Climate Lobby and other decision-makers advocating to put a price on carbon; an accurate SCC that reflects the true cost of climate change should help facilitate more progressive climate policies and investments. 

In the future, SCC estimation techniques will continue to need to be refined using updated environmental, economic, and demographic data. The modeling will also need to be adjusted to reflect the latest climate science. This will allow decision-makers to more accurately weigh the costs and benefits of climate change policy. For now, the work completed by RFF and collaborators represents an important step in addressing climate change through data-driven and science-based policymaking. 

Sam Ruderman has six years of experience in the environmental sustainability field and has worked across the private, public, and nonprofit sectors. He specializes in climate change mitigation and adaptation planning as well as building energy efficiency. Sam currently lives in Truckee and works for Sierra Business Council, a local triple bottom line nonprofit organization.