Two eminent economists are urging the Biden administration to peg the social cost of carbon at a minimum US$100 per tonne or risk underestimating what Bloomberg Green calls the “looming damage from warming temperatures”.
The paper published Monday by Nobel laureate Joseph Stiglitz and Lord Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, appeared just days before the new administration is to release an interim report on the all-important calculation, Bloomberg reports. The recommendation is well above the $60 price set by the Obama administration, and in a different universe from the $8-per-tonne threshold during the Trump years.
“They just made it up,” Stiglitz said of the Trump team.
“Calculations to define the social cost of carbon allow regulators to adjust federal benefit-cost analyses to account for environmental damage associated with fossil fuels, capturing potentially enormous economic impacts that aren’t reflected in market prices paid to fill a fuel tank or generate electricity by burning gas,” Bloomberg writes. Without the right benchmark, “the authors warn that the U.S. is significantly underestimating the financial impact of carbon emissions and hindering President Biden’s efforts to steer the country toward a net-zero economy by 2050
Where many economists—and many climate campaigners—assume a market economy can get climate change under control by arriving at the right carbon price, “Stiglitz and Stern assail U.S. policy-makers’ assumption that there’s only one market failure they need to consider,” the news agency notes. “Important to include too, they write, are inequality, technological innovation, disclosure of risk in capital markets, the incumbent power of existing infrastructure and social networks, and the damage from other kinds of pollution.”
That analysis leads into an attack on the conventional models used in climate economics research, including the ones the Obama administration relied on. It landed on the same day Fitch Ratings warned that countries’ credit ratings may be in jeopardy if they don’t look out for the risk that their fossil fuel installations will become stranded assets as the transition off carbon gains momentum.
“It is a fundamental mistake to begin the analysis of climate change under the premise that, but for the mispricing of emissions, the economy is efficient,” Stiglitz and Stern say.
The two economists conclude that the reasons for the U.S. to update its social cost of carbon calculation go far beyond the damage done during the Trump years. “Scientists have learned much more about [climate] change in the intervening years,” Bloomberg writes, citing the report, “and even the value used by the Obama administration is no longer high enough to set the U.S. on a path to reaching the goals of the Paris Agreement.”
On the contrary, Stiglitz and Stern write, “the U.S. would be committing itself not to achieve the Paris goals” if it relied on yesterday’s economic models.