U.S. ups 'social cost' of carbon emissions
Keystone XL pipeline could come off as more costly to environment and society under revised rate of $36 US per tonne of CO2
The U.S. government has increased a key economic measure it uses to estimate the damage caused by carbon emissions and the benefit of carbon reduction — upping the "social cost of carbon" from $22 US per tonne of CO2 to $36 per tonne.
That means projects such as the proposed Keystone XL oil pipeline, which would run from the Alberta oilsands to Texas, could be seen as having a more negative impact, or higher social cost, than under the old estimate.
The Obama administration slipped the increase in last month as it introduced new energy efficiency standards for microwaves.
The original estimate for the social cost of carbon (SCC) was set at $21/tonne in 2010 by a working group of experts from several government agencies, led by the Council of Economic Advisers and the Office of Management and Budget (OMB). It was later increased to $22/tonne.
The interagnecy group describes the SCC as "an estimate of the monetized damages" — such as property damage or changes to argicultural productivity and human health — associated with increased carbon emissions.
The SCC comes into play when government departments and agencies do cost-benefit analyses of particular regulations, allowing them to weigh the cost of implementing fuel emission standards, for example, against the benefit of reducing carbon emissions. It is revised regularily to remain current with the latest climate science.
The new figure reflects updated scientific and economic models of climate change said OMB spokeswoman Ari Isaacman Astles in a statement emailed to CBC News.
"These updated values are well within the range of mainstream estimates," she said. "Indeed, similar estimates are used by other governments, international institutions and major corporations."
Canada's approach 'consistent' with U.S.
Environment Canada uses an SCC value of $28.44/tonne when doing regulatory impact analyses, such as for the heavy-duty vehicle and engine greenhouse gas emission regulations that were issued in February.
The agency said in an email its approach to determining the SCC is "largely consistent" with that of the U.S. government, and that it is in the process of assessing the U.S. changes and their implications for Canada.
But economists and environmental scientists don't all agree on how to calculate future climate change-related damages.
Environmental groups like the National Resources Defense Council believe the government has underestimated the extent of climate-related damages by failing to factor in worst-case scenarios such as drought, storm surges, lost productivity from power outages and massive ecosystem changes like ocean acidification.
The group says the recent increase is an improvement but still does not reflect the true environmental and social cost of greenhouse gas emissions. It estimates the cost could be as high as $252/tonne.
Putting a value on future generations
The NRDC and other environmental groups also think the government should use a lower "discount rate." The rate effectively reduces the expected cost of future damages by taking into account economic and technological improvements that will, it is assumed, make future generations more capable of absorbing such damages.
It has been described as a kind of interest rate in reverse. Under the government's model, which uses a discount rate of three per cent, a dollar's worth of damages would be valued at 23 cents 50 years from now.
The NRDC, however, thinks the government's math assumes a too optimistic view of future economic growth and doesn't factor in the impact of today's consumption on future generations.
"You're really betting your children's future and their children's future on a gamble that says we're going to have historic growth rates even though those growth rates were observed in a period of relative climate stability," said Laurie Johnson, chief economist of NRDC's climate and clean air program.
"There's no reason to think that we're going to have continued growth rates the way we have if we're going to have a lot of climate disruption. You're also assuming that increased consumption can compensate people for pain and suffering brought on by climate change, and for irreversible environmental losses," she added.
Insurance against future harm
When it comes to mitigating the risks of climate change, people don't necessarily require a positive return on their investment, Johnson said.
'[People] buy insurance for much lower-probability disasters.' — Laurie Johnson, NRDC economist
"That's not how people think of catastrophic risk; they buy insurance for much lower-probability disasters [than climate-related damage]," she said.
That's why the NRDC has proposed that the government use a discount rate of 0.7 per cent, which would be on par with the rate of return on a relatively risk-free asset like a short-term U.S. Treasury bill.
It's not clear yet whether the revised U.S. values will alter upcoming environmental legislation, such as the Environmental Protection Agency's proposed emissions limits for new power plants, or projects like TransCanada's Keystone XL pipeline.
Asked how it felt about the new United States' new SCC value and how it might affect its Keystone XL project, TransCanada said it was in the process of developing its position on social carbon costs but was not yet ready to make a comment.