On Feb. 26, the Biden administration announced that, for at least the rest of the year, federal agencies will conduct regulatory and environmental analyses assuming that the global “social cost” of emitting carbon dioxide is $51 per ton. Called the “Social Cost of Carbon” for short, this calculation will be directed primarily toward agriculture and fossil fuels. The announcement creates the climate policy conundrum of 2021.
The announcement’s technical paper explains the assumptions and uncertainties. It also makes clear the $51 value does not consider the social benefit of consuming oil and gas. With similar assumptions and uncertainties, and just for the sake of illustration, a highly simplified value of that benefit can be calculated in dollars per ton. The global “social benefit of carbon” is $5 million per ton. (See below.)
This calculation is the author’s, not that of the states suing President Biden. But the illustration shows that ignoring benefits when quantifying costs might skew decision-making. The failure of the social cost of carbon to consider the benefits is what lies at the heart of the states’ suit. Missouri v. Biden, No. 4:21-cv-00287-SPM (E.D. Mo. filed March 8, 2021). The states claim that, by design, the social cost of carbon skews the analysis to justify increased federal authority over areas of regulation traditionally left to the states.
The suit aims broadly. First, it challenges section 5 of the president’s climate-crisis Executive Order 13990 (signed Jan. 20, 2021) (86 Fed. Reg. 7037 (Jan. 25, 2021)). The suit says the Order mandates use of the social cost of carbon government-wide and is an unconstitutional presidential exercise of legislative power. Second, it challenges that mandate as unauthorized by any statute. Third, it challenges the president’s Interagency Working Group for adopting the mandate without following notice and comment rulemaking. Fourth, it challenges the mandate as substantively arbitrary and contrary to law.
For readers trying to understand the issues raised by the case, it may help to have a simplified explanation of how the costs and benefits are determined. According to the Interagency Working Group’s technical paper, the social cost is “the monetary value of the net harm to society associated with adding a small amount of [carbon dioxide] to the atmosphere in a given year.” Its purpose is to “reflect the societal value of reducing emissions of the gas” by one metric ton. It tries to value the cost of “net agricultural productivity,” human health effects, property damage, “risk of conflict,” environmental migration of populations and “the value of ecosystem services,” though most of these categories are hard to value in dollars.
But the social cost focuses on the value of reducing the “net harm” of emissions. While it claims to consider the “net” benefit to agriculture of having increased carbon dioxide in the air, it does not consider the social value of the oil and gas from which that increase results. Oil and gas companies would not produce oil and gas if society did not find their products highly useful. Farmers would not farm but for society’s demand for their food. The beneficial value from farm and well is not reflected in the social cost. For example, social cost tries to capture added costs of health care if emissions cause illness; but does it capture the cost to society from shutting in the oil and gas used in pharmaceuticals and health care services? It does not.
No doubt, there are many ways to calculate the social benefit on the same per-ton basis as the cost. My overly simple calculation took the following steps. From 1960 forward, four directly measured numbers have shown reasonably close correlation. Production of food and fossil fuels has increased. Emissions of carbon dioxide have increased. Global average surface temperatures have increased. Finally, and this is the elephant in the climate policy room, global population has increased by 5 billion people, from 3 billion to nearly 8 billion.
In large part, the ability of the planet to provide food, heat, health care and shelter for the additional 5 billion people is attributable to the increased use of the products of oil and gas, particularly in agriculture. If you regard a human life as a social benefit, how much benefit would an economist calculate to sustain these extra 5 billion people? National Public Radio’s Sarah Gonzalez posed the question of the economic value of a human life to Vanderbilt University economist Kip Viscusi in an April 23, 2020, podcast. His answer: about 10 million U.S. dollars. From this, the economic value of 5 billion lives is about $50 quadrillion. Divide that by 10 gigatons of carbon dioxide emissions per year and the benefit is $5 million per metric ton.
One can quarrel passionately about the assumptions used in the technical paper and in the highly simplified calculus of benefits here. That appears to be the point of the states’ litigation. Let’s have that quarrel – on the record, through legal process, and with the strengths and weaknesses of the assumptions made transparent – before the social cost of carbon becomes the law of the land.