Put a Price on It

Seemingly just in time to lend support to the revived idea of a carbon tax that we noted on Monday, an Obama Administration inter-agency workgroup has released a report that attempts to do the critical math necessary to put a price tag on CO2 emissions.

The report sets out four dollar figures that represent the “social cost of carbon,” or the potential damages associated with not stopping the emissions of each incremental ton of CO2. The figures, which differ due to the use of different models and discount rates, designed to capture different views about the impact of climate on future decisions, include such damages as changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services.

Not surprisingly, the numbers vary widely – spanning, in 2007 dollars, from $5 to $65 per ton for 2010 emissions, up to as high as $136 per ton for 2050 emissions.   The report outlines the potential shortcomings of the figures in detail, for instance, the potential impact of the other 5 greenhouse gases included in the EPA’s endangerment finding which have not yet been quantified, and the possibility of  “tipping point” scenarios in climate systems that could drastically change the marginal impact of each ton of emissions.

However, even given these limitations, this valuation could be a critically important step towards determining such figures for use in policies like a carbon tax.  After all, internalizing the externality and cost to society is one main purpose of a carbon tax.

The more immediate impact of the report may also be significant.  Federal agencies are required, by Executive Order 12866, to assess the costs and benefits of regulations before deciding to act.  These figures will be used to incorporate the social cost of carbon into this analysis for all agency decisions, even those which might only have a small impact on global emissions.  As most federal agency decisions will have some impact on global emissions, even if only marginal, adding in the cost of CO2 could have wide-ranging implications.

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