The social cost of carbon is probably the most important statistic in the economics of climate change.
Estimating the social cost of carbon is an ambitious undertaking. Using projections for future emissions based on population, economic growth, and other factors, economists attempt to estimate how temperature increases and sea level rise will impact agriculture, health, energy use, and other social impacts in the future. They then monetize these impacts and discount them to present dollars and come up with a single estimate of the social cost of the release of a ton of carbon into the atmosphere.
This leads to a single number that tells us how much carbon emissions cost our economy.
This number is important because regulators use it to estimate the benefits of federal interventions that reduce carbon emissions. This means that a higher social cost of carbon will lead to more policies being deemed to have net economic benefits and a lower social cost of carbon will lead to more policies deemed to have net economic costs.
The social cost of carbon is also the implied efficient price for a carbon tax, so it has direct relevance for policy design as well.
These two reasons, the difficulty of calculating and the public policy importance of the measure, have led to a number of different estimates of the social cost of carbon. Below are some of the estimates that have existed over the years.
$1
The Trump Administration estimated the social cost of carbon could be as low as $1 per metric ton of carbon emitted. The estimate the Trump Administration made was based on domestic impacts alone, ignoring international impacts. While this is not an analytically unsound way to calculate the social cost of carbon, it does overlook a clear political problem with climate change: collective action.
The goal of the Paris Agreement was to get the international community to get on the same page about carbon emissions. This is because everyone in the world suffers if carbon emissions are not abated. Endorsing a social cost of carbon so low was a message rejecting the notion that the United States had any intention to cooperate with the international community in abating carbon emissions and reducing the severity of global climate change.
$37
The Obama Administration was the first federal administration to officially put a price on carbon emissions at $37 per metric ton in 2015, with the value increasing over time. This number was groundbreaking as the first social cost of carbon adopted by a federal administration, but was soon replaced by the Trump Administration estimate.
$51
The recent estimate of the social cost of carbon from the Biden administration was $51, using similar methodology to the social cost of carbon estimated by the Obama administration. This was a substantial change from the Trump Administration number but still on the low end of what mainstream climate economists were estimating at the time.
$190
The current proposal from the Biden Administration brings the social cost of carbon closer to academic estimates of the social cost of carbon. While this estimate is less than a year old, it stands as the highest estimate of the social cost of carbon by a federal administration. This number brings the estimate closer to a September 2022 article in Nature that estimated the social cost of carbon at $185 per metric ton of CO2.
$305
Some estimates of the social cost of carbon in the academic literature exceed $300. A recent study put its estimate at $305-312 per metric ton of carbon dioxide.
On the opposite side of the Trump Administration figure, a high social cost of carbon implies a responsibility for the United States to be a leader in curbing carbon emissions. Some could see this as the United States taking on more of its responsibility than it should, while others could see it as the United States taking its part in ameliorating a global problem.
If a federal or state administration puts the social cost of carbon at $1 or $305, it can have a big impact on public policy. A direct tax on carbon of $1 per metric ton of carbon dioxide versus $305 per ton would have drastically different impacts on the economy. And the indirect impacts of evaluating regulations under these different costs could be large as well. These estimates matter and care should be taken to make sure that we have a good handle on the true cost of carbon emissions to the economies of future generations.