The Cost of Climate Pollution

More Than Zero: The Real Costs of Carbon Pollution

February 26th, 2014

Editor’s Note: This post is written by Thomas Sterner, a professor of economics at the University of Gothenburg and a leading expert on environmental economics.

The U.S. government is finally moving to put a check on our nation’s carbon pollution and it is basing its decisions on sound science and economics. But there is a problem—too many risks of climate change are missing from the government’s research. Fires, storm surges, and other consequences of the greenhouse effect have not been accounted for and the result is a weaker response than is needed to prevent them.

Scientists (97% of them by one estimate) have coalesced around the fact that a warming planet would create serious natural problems. Though not directly linked to climate change, Superstorm Sandy, and the wildfires in Colorado last summer are examples of the types of extreme weather events we could see more of if we allow global temperatures to rise.

At the root of the problem are many uncertainties but also many processes about which we do have some information: For example, many natural disturbances are kept in check by the cold. Certain bacteria and insect larvae are killed off when the thermometer dips and some weeds that harm crops die off after the first frost. In these delicate natural balances, even a small uptick in temperatures can unleash agricultural and public health woes. And then there are the polar ice caps, where scientists now say increases in temperature can set off a chain reaction that causes flooding, more extreme weather, and other calamities including further warming.

New risks like these don’t come cheap. If they go unchecked, they could drive up insurance policies, food prices, and health care costs. Public funds would be depleted as governments respond to more natural disasters. Who would pay for these consequences? Here’s a hint: It wouldn’t just be the polluters who caused the problems. These costs would be borne mostly by the public both through strained personal bank accounts and depleting government coffers. In all likelihood they will be borne to a large extent by the poor, vulnerable and powerless of this World.

To prevent these effects before they begin, and to save the public from picking up the tab, there ought to be a price on carbon. This price could either be through a cap and trade system or a carbon tax. In the absence of such a tax the U.S. government has begun to take steps at least to use a shadow value for public investments by agencies like the Department of Transportation or Energy. Using some of the best scientific and economic research government researchers have estimated what the public pays when a ton of carbon pollution is emitted into the atmosphere. By tallying up things like lost fisheries, increased energy demand, and higher rates of malaria and yellow fever (as well as positive economic elements like decreased transportation costs), it arrived at an estimate of $37 per ton.

Using that estimate, we can judge whether efforts to rein in our nation’s carbon pollution are worth doing. It allows us to ask: “Will the public benefit economically from measures to reduce our emissions?” And at $37 per ton, the answer is very often yes.

Without this estimate of the public’s economic stake in reducing pollution, our government would be flying blind—making choices without a clear sense of the costs and benefits of their actions. With it, they can compare the costs of complying with new emissions rules, to the price of unmitigated climate change.

There are some problems with the government’s $37 per ton estimate. It is missing many of the consequences scientists say will occur down if global temperatures rise. Improperly valuing these risks means low-balling the price the public would pay in a changing climate and dampen our response to prevent them. While the government should be commended for taking a needed first step in estimating the cost of carbon, research shows that this number is missing many consequences of temperature rises and therefore, should be regarded as a lower-bound.

Another sticking point is the government’s use of the economic tool of discount rates to value benefits of climate action to future generations. There’s a consensus that the rate ought to go down over time if the growth rate of the economy is uncertain. The greater is the uncertainty, the lower the rate. A recent article in Science shows exactly how the discount rate should fall over time as a result of growth uncertainty. As a result, the $37 figure of how much each ton emitted today costs us would go up.

The Cost of Carbon Pollution project is using the best economic research to identify the risks of climate change that are missing from the government’s estimate. On this site, readers will find reports and commentary on what should be added to the calculation to put cost of carbon values in line with likely climate damages. In the end, the official cost of carbon has nowhere to go but up.