Opinion | ‘The Most Important Number You’ve Never Heard Of’

There’s a good reason climate change is called the policy problem from hell. Several good reasons, actually, but let’s start with a big one: Fighting climate change forces society to spend real money today to reap benefits that will occur over hundreds or even thousands of years. We’re not set up to be that farsighted, either financially or mentally.

Ideally, we would know precisely how much damage each ton of greenhouse gas emissions does to the environment (we don’t). We would know how much each dollar of economic output contributes to emissions, now and in the future. We would know how quickly the population and the economy will grow, including how rich we’ll all be in the future. Does it make sense for us to deprive ourselves today in order to make the planet more habitable for our great-great-grandchildren? If you answer yes, how much should we tighten our belts — a little or a lot?

Trying to answer such questions is “totally ridiculous and no one in their right mind would attempt to do it,” James Stock, a Harvard University economist, said on Sept. 9 at a virtual conference put on by the Brookings Institution.

Ridiculous, yes, but also essential, as Stock recognizes. There is no alternative. Stock moderated a session on a new paper that attempts to calculate the social cost of carbon — that is, the economic harm done by each incremental ton of carbon dioxide. That paper, which draws on the wisdom of the world’s top experts in economics, climatology and other fields, aims to inform the Biden administration, which has promised to announce its own calculation of the social cost of carbon in January.

Real consequences will flow from whatever number the Biden administration chooses. Rules on fuel economy and appliance efficiency, carbon taxes and more are based on it. Around 2010, while working in the White House as chief economist of the Council of Economic Advisers, Michael Greenstone started calling the social cost of carbon “the most important number you’ve never heard of.”

To find out more, this week I interviewed Greenstone, a University of Chicago economist who was a commenter on the paper presented at Brookings, as well as Richard Newell, the president of the economics-oriented environmental group Resources for the Future, who was one of the paper’s 11 authors.

Newell is plugged in: He was a chair of a 2017 report by the National Academies of Science, Engineering and Medicine that prompted the new study. On his Inauguration Day, President Biden reconstituted an interagency working group on climate change that President Trump had disbanded and gave it one year to “listen to the science” and come up with a new calculation of the social cost of carbon.

Unfortunately for Biden, who is going to have to explain this to the American people, estimates of the social cost of carbon are hugely affected by the choice of discount rate, which is a wonky concept that represents in today’s dollars how much society values future costs and benefits. (If your discount rate is high, you might rather have one cookie today than wait for two next week; if your discount rate is low, you’ll wait to get the two.)

An innovation in the report by Newell and his fellow authors is that it allows the discount rate to vary with economic growth. For math reasons, this causes the average rate to trend lower over time, which in turn makes future damages loom larger.

So, what is the social cost of carbon, according to the report? The paper presents and explains its new model, rather than generating outputs. But with certain plausible assumptions, the model spits out a social cost of carbon of $56 a ton on average at a 3 percent discount rate, and $171 a ton on average at a 2 percent discount rate. The 2 percent figure is more in line with the relevant current interest rates. (There are higher numbers for methane and nitrous oxide, which are more potent.)

To provide some context for those figures: The Obama administration calculated the social cost of carbon at what amounts to $51 a ton in today’s dollars. The Trump administration lowered that to $1 to $7 a ton by applying higher discount rates (thus shrinking the present cost of future damage) and by considering damage in the United States only, rather than worldwide. The Biden administration restored the Obama administration’s number on an interim basis while putting out the call for more research.

It’s terrible news for the planet and humanity if greenhouse gas emissions create $171 in damages per ton. (Keep in mind that burning 113 gallons of gasoline is enough to generate a ton of carbon dioxide or the equivalent in other greenhouse gases, according to the Environmental Protection Agency, so that would be a cost to the planet of more than $1 per gallon consumed.) The higher figure implies that even very costly measures to reduce emissions should be implemented immediately. That’s a tough message to swallow, especially for the world’s poor, who have the hardest time coping with higher energy costs. Rich nations may need to extend them more of a helping hand.

True, there’s a lot of uncertainty in this sort of science. But Greenstone, the University of Chicago economist, says that’s no reason for complacency. Society should spend now to reduce the risk of unlikely but highly negative outcomes, just as people buy insurance against the unlikely event of a house fire, he told me. He told the Brookings audience, “We’re at the dawn of a new era in understanding climate damages, and this paper is part of that.”

The Readers Write

Here in the United States, a sort of “bribery” is perfectly legal, the difference being that the payment goes to an organization rather than to an individual. Want that passport sooner rather than who-knows-when? Pay a premium. Want to avoid long lines at the amusement park? Pay a premium. Want to join the shorter line at the airport? Get a credit card that charges an annual fee or pay for a known traveler number.

Charlotte Newman

Cleveland Heights, Ohio

Quote of the Day

“If low-wage workers do not always behave in an economically rational way, that is, as free agents within a capitalist democracy, it is because they dwell in a place that is neither free nor in any way democratic. When you enter the low-wage workplace — and many of the medium-wage workplaces as well — you check your civil liberties at the door, leave America and all it supposedly stands for behind, and learn to zip your lips for the duration of the shift.”

— Barbara Ehrenreich, “Nickel and Dimed: On (Not) Getting By in America” (2001)

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