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Carbon Cost Recalculation Reveals True Value of Emissions Reduction

by Kristen Sheeran • July 13, 2011 @ 10:18 am

New research exposes flaws in government estimate of social cost of carbon.

The U.S. government’s estimate of the social cost of carbon – an estimate of the damage caused by each additional ton of carbon dioxide emitted into the atmosphere – is fundamentally flawed and  understates the potential impacts of climate change, according to a new report released today by E3 Network.

The peer-reviewed report, Climate Risks and Carbon Prices: Revising the Social Cost of Carbon, authored by Frank Ackerman and Elizabeth A Stanton for E3 Network, finds that the true social cost of carbon is in fact more uncertain than the government’s $21 per ton estimate, a key policy-making factor in everything from power-plant regulations to car fuel-efficiency standards.

The entire range of new calculations arrived at in the report, reaching as high as $893 per ton in 2010 and $1550 in 2050, are all well above the government’s $21 estimate, bringing into question prior analyses of the benefits of reducing emissions and potentially current thinking on what policymakers will consider cost effective.

“The government has been making decisions based on the flawed calculation that carbon dioxide emissions cost just $21 per ton. In fact, the real cost may be up to forty times that amount,” said Dr. Elizabeth A. Stanton, economist and one of the report’s two authors.

Comparing prior research on the cost of reducing emissions with the report’s new findings on the cost of carbon, the report concludes that it is highly likely it is costing us more to do nothing about climate change than it would to adopt mitigation measures.

“Now that we know how much we could end up paying to endure the impacts of climate change, investing in reducing our emissions is clearly the prudent option,” commented report author and economist, Dr. Frank Ackerman.  “It’s the difference between servicing your car, or waiting for it to break down on the highway.”

E3 Network commissioned this report in response to a critical mass of research by climate and economic experts, all pointing towards what we now know: that the government’s estimate of the cost of carbon was a significant underassessment. Hopefully, those making decisions on US climate change policy will digest this new information and alter their investment approach accordingly.

The report also features a commentary by Dr. Simon Dietz, Co-Director of the Grantham Research Institute on Climate Change and the Environment, London School of Economics. Dietz says of the report, “The consequence of Ackerman and Stanton’s modeling is thus to increase the range of possible climate damages, specifically to increase the upper limit, and this in turn increases the importance of properly handling risk and uncertainty.”

Read E3 Network’s full report, executive summary, peer review and other materials.

 Related posts:

Costs of Inaction: Climate Econ Model Needs Major Overhaul

Are We Underestimating the Costs of Climate Change?

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1 Comment »

  1. This report is a vital contribution toward rethinking economics. If today’s globalized financial paradigm is an arbitrary construct, then our present ecologic and economic hardships may be a sign of a Ponzi scheme of unaccounted risk from off-balance-sheet costs. However, the existential tragedy in this case is that this is not about money alone, but involves the very ability of the ecosphere to support life as we know it. Carbon, after all is a substance rather than a “resource of energy.”

    One question I would pose (to economists) is what is the “carbon cost” of the final 21st Century emitted ton that trespasses the thresholds (of Holocene Climate) thereby allowing automatic, rapid climate change toward cascading global disaster? Would it not be infinite?

    Comment by James Newberry — July 18, 2011 @ 6:10 pm

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