Scientists predict that climate change will have, and in many cases has already had, severe consequences for society—like the spread of disease, decreased food security, and coastal destruction. These damages from emitting greenhouse gases are not reflected in the price of fossil fuels, creating what economists call “externalities.” The social cost of greenhouse gases (SC-GHG) is a metric designed to quantify and monetize climate damages, representing the net economic cost of greenhouse gas emissions. In essence, the SC-GHG is a monetary estimate of the damage done by each ton of climate pollution that is released into the air.
The SC-GHG can be used to evaluate policies and guide decisions that affect greenhouse gas emissions, including:
- regulatory impact analysis and environmental impact statement
- electricity ratemaking
- resource management policy and royalty setting
- setting emissions caps
- establishing a carbon price
Federal and state agencies should use the SC-GHG in any applicable context to aid in making rational policy decisions in a transparent manner. Many states are already using the SC-GHG in their decisionmaking.
For now, states can draw on the 2021 estimates from the federal government’s Interagency Working Group on the Social Cost of Greenhouse Gases (IWG). Those estimates were based on the most up-to-date science and economics and were arrived at through an academically rigorous, transparent, and peer-reviewed process.
In November 2022, the federal Environmental Protection Agency drafted a comprehensive update to the SC-GHG applying the most up-to-date science and economics. Those valuations are undergoing peer review and expected to be finalized in 2023 or 2024.
There are many misguided critiques of the SC-GHG made by those who would prefer less regulation of greenhouse gases, but this should not deter decisionmakers from using the SC-GHG. In fact, experts broadly agree that the SC-GHG is appropriate to use and, if anything, reflects a conservative underestimate of climate damages. And there are a wide range of resources that decisionmakers can use while exploring how and why to use the SC-GHG.
There are, and some of these benefits, such as potential increases in agricultural yields, are captured in the SCC estimate. These benefits reduce the magnitude of the SCC. Other benefits of climate change are omitted, including the lower cost of supplying renewable energy from wind and wave sources, the increased availability of oil due to higher temperatures in the Arctic, and fewer transportation delays from snow and ice. However, omitted negative impacts clearly exceed omitted benefits. 1 Taken as a whole, therefore, omitted impacts reduce (and don’t inflate) the SC-GHG value.
The other benefits from the use of fossil fuels that are unrelated to climate change (such as economic output) are omitted from the SC-GHG, but they are typically included in any analysis in which the SC-GHG is used. This is because in a benefit-cost analysis, the cost of regulations, such as the potential loss of output, is always balanced against the benefits of greenhouse gas reductions.