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The Economic Cost of Carbon Pollution Is Much Greater Than Estimated, Say Stanford University Researchers

The US government estimates each ton of carbon dioxide emitted into the atmosphere costs the economy $39 — a figure that should be $220.

by Laura Dattaro
Jan 12 2015, 10:40pm

Imagen vía AP/Martin Meissner

The impacts of climate change extend far beyond the physical world. Rising sea levels, erratic weather, and other changes effect social systems as well, including the economy.

One measure of this effect, known as the social cost of carbon, is used to help estimate the value of policies that restrict emissions. But a study published on Monday in Nature Climate Change shows that the actual cost of emitting carbon could be six times higher than the number used by federal regulators.

"You can use the social cost of carbon to valuate whether or not different efforts to reduce emissions pass a cost-benefit test," Frances Moore, a doctoral candidate at Stanford University's School of Earth Sciences and co-author of the paper, told VICE News. "If you have a much higher social cost of carbon, then a lot more mitigation actions are going to pass this cost-benefit test."

The US Environmental Protection Agency (EPA) currently estimates that each metric ton of carbon emitted will result in about $39 worth of economic damage. This number informs regulatory decisions on everything from power plants to microwave ovens, including the Clean Power Plan proposed by the Obama administration in June, which aims to curb emissions of heat-trapping gases from power plants.

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The models used to arrive at that amount assume that climate change does not permanently effect gross domestic product (GDP), a common measure of the size of an economy, over the long-term. But recent economic research indicates that higher temperatures may constrain GDP growth over a much greater length of time than previously thought. 

In 2010, for example, the National Bureau of Economic Research found that when outdoor temperatures topped 85 degrees Fahrenheit, employees in outdoor industries worked up to an hour less per day. Over time, this would lead to a decrease in individual earnings, with effects on the economy rippling outward. 

Moore and her co-authors adjusted the commonly used models to include observations from studies that found structural, rather than temporary, impacts on the economy. They found that a more accurate social cost of carbon would be $220 a ton, 5.6 times that of the US government's current estimate.

"If climate change affects the underlying components of the economy that determine how it grows — typically that means the labor force, capital, investments, technology — then it can actually have a permanent effect," Moore told VICE News. "So if you have a high temperature in one year, it then has a permanent effect in all following years, even if that change goes away."

The effect is greater on developing countries than on developed countries, which may be in part because their economies tend to be more dependent on factors that are exposed to the climate, like crop yields.

As countries learn to adapt to climate change, the effect of greater temperatures on their economies should decrease. Using an assumption that countries will generally be effective at implementing adaptive measures, like building seawalls for coastal communities, Moore's model finds that economies would best be served by policies that limit warming to two degrees Celsius (equivalent to 3.6 degrees Fahrenheit), a number the scientific community generally agrees would avoid catastrophic levels of warming.

"Results like this should give a pause that maybe we should start being more cautious," Peter Howard, an economist at NYU Law School's Institute for Policy Integrity, told VICE News. "Maybe this doesn't happen, but if it does it could be quite costly, and we should take this risk into account."

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It's possible the true cost of carbon could be even higher, Howard says, as researchers across disciplines continue to discover unforeseen effects of fossil fuel emissions and rising temperatures. The fourth assessment report from the UN's Intergovernmental Panel on Climate Change found that it's "very likely" the current social cost of carbon is underestimated, something the EPA notes on its web site.

Many climate models, for example, don't account for the full effects of ocean acidification resulting from increased carbon emissions, a relatively recent discovery. Social scientists and economists are also beginning to predict an increase in human conflict in a climate-changed world, which may result from competition over resources or a simple human aversion to high temperatures.

"Those are omitted from the social cost of carbon," Howard told VICE News. "There might be a valid reason, which is that we don't have exactly the method yet to estimate those costs, but currently we're just assuming they're zero." 

Follow Laura Dattaro on Twitter: @ldattaro