John Amis/AP Photo
The coal-fired Plant Scherer in Juliette, Georgia
This story is part of the Prospect’s series on how the next president can make progress without new legislation. Read all of our Day One Agenda articles here.
Most of us would probably agree that our lives are not “worth more” than those of future generations. But when the federal government—even under Barack Obama—has tried to calculate the true costs of global warming, it has implicitly assumed that future generations are not worth very much. It has also failed to assign value to iconic historical and cultural resources. The Biden administration has the opportunity to fix that.
Obama’s Environmental Protection Agency tried to calculate what it called the “social cost of carbon,” or “SCC,” described as “a measure, in dollars, of the long-term damage done by a ton of carbon dioxide (CO2) emissions in a given year.” They recognized that it would be important to have such a metric when developing regulations designed to reduce carbon emissions. If you don’t put a price on carbon, it’s harder to justify the kind of dramatic regulatory action that’s necessary to avoid catastrophic climate change.
The Trump administration has gone to outrageous lengths to redefine the SCC in order to make it almost meaningless. But even the Obama administration’s estimate was far too low, as numerous economists have since recognized. Under the Obama SCC, it would be considered excessive to spend $5 billion today to save a billion lives 500 years from now. Under the Obama SCC, the Statue of Liberty, which is severely threatened by climate change, is “worth” only $7.17 per adult American. I suspect most of us would probably pay more than that to preserve the Statue of Liberty from destruction. More on that later.
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Biden’s EPA can and should prepare a more accurate estimate of the true cost of carbon. Not only would this properly assess the economic and social threat of climate change. It would also form part of a broader education campaign explaining the permanent losses that would ensue if we don’t get the climate crisis under control.
They could start by focusing on the “discount rate,” the number used to reflect assumptions about the value of a dollar. Economists assume that future generations will be richer, so a dollar will be worth less to the people of the future than to us today. Even in the short term, most people would rather have a dollar today than, say, $1.15 in ten years. Economists have developed discount rates to reflect these preferences.
But carbon emissions cause ongoing damage for thousands of years. And when you apply discount rates to such multigenerational issues, you are essentially saying that the lives and experience of people in the future are worth less than those of people today.
The Obama administration applied a 3 percent discount rate in developing the SCC, assuming that each year, a dollar in the future is worth 3 percent less than the year before. The Trump administration has used a 7 percent discount rate. The difference is dramatic. The federal government currently values a human life at about $10 million. Using a 3 percent discount rate, the loss of a life in 50 years is worth $2.3 million dollars today. Using a 7 percent discount rate, that is worth only $339,000.
Even a 3 percent discount rate leads to absurd results. Suppose scientists discovered that an asteroid was scheduled to hit Earth in the year 2520, and kill a billion people. Using a 3 percent discount rate, and a value of $10 million per life, a billion lives in 2520 are “worth” only $3.81 billion today. So if Bill Gates announced that he was going to spend $5 billion to launch a rocket to intercept the asteroid and save those lives, an economist using the Obama SCC would say, “Bill Gates has lost his marbles, that’s a terrible investment!”
Make no mistake: Climate change will prove deadly if allowed to proceed unchecked. Wildfires and heatstroke and drought and hurricanes and wars fought over declining water supplies threaten human life. The Fourth National Climate Assessment estimates that under a “business as usual” scenario, with no effort made to reduce greenhouse gas emissions, deaths due to extremely hot and cold days in American cities will increase by 4,500 to 9,000 per year. Additional lives will be lost due to worsening air quality and a likely increase in vector-borne diseases.
The Obama SCC’s disregard of heritage losses can probably be explained by that word UNESCO used: “incalculable.” But it is unnecessary to accept “incalculability” as a given.
So what should the discount rate be? There’s a pretty good argument that it should be zero. The lives of future generations aren’t worth any less than ours. But there are other options. Some economists argue for a discount rate that declines over time. Part of the justification for that is that assumptions about perpetual economic growth at the levels of recent decades are dicey, especially in the context of climate change, which could dramatically impact the economy. The British government at one point adopted a declining discount rate for long-term analysis: 3 percent for 0 to 30 years, gradually declining to 0.86 percent for 301+ years.
There’s another problem with the Obama SCC. It simply doesn’t count a lot of stuff whose value is very real, but which is considered hard to quantify. As the National Academies of Sciences observed in a 2017 report, current models do not address “the loss of goods and services that are not traded in markets and so cannot be valued using market prices: examples include loss of cultural heritage, historical monuments, and favored landscapes.” That’s where the Statue of Liberty comes in.
In a 2016 report on the impact of climate change on “World Heritage,” UNESCO noted that “[a] 2015 vulnerability analysis carried out by the US National Park Service … concluded that 100 per cent of the assets at Liberty National Monument are at ‘high exposure’ risk from sea-level rise due to the extremely low elevation of the island and its vulnerability to storms.” UNESCO tagged the cost of the Statue of Liberty and the surrounding land at more than $1.5 billion, “but the intangible cost of future damage to this international symbol of freedom and democracy is incalculable.” The UNESCO report listed Yellowstone National Park as another treasure at high risk from climate change, as well as Stonehenge, the Italian city of Venice, and the Galapagos Islands, to name a few. It could also have mentioned Boston’s historic Faneuil Hall, which will be underwater in a few hundred years if we do not take dramatic action.
The Obama SCC’s disregard of heritage losses can probably be explained by that word UNESCO used: “incalculable.” But in the context of the SCC, it is unacceptable and unnecessary to accept “incalculability” as a given. As the National Academies of Sciences observed, effects such as the loss of cultural heritage “may be converted into monetary terms using willingness to pay or other simulated market concepts.” In the context of Superfund lawsuits, “natural resource damages” have been assessed by doing surveys asking people how much value they place on certain resources. If you asked a thousand Americans how much they would pay over their lifetimes to save the Statue of Liberty, the average answer would probably be a lot more than $7.17—which is what you’d get if you simply divided UNESCO’s $1.5 billion “asset value” by the 209 million American adults.
The initial SCC came about through an Interagency Working Group, which the Trump administration subsequently disbanded. The Biden administration could reinstitute that working group, with the directives that the new SCC should use the proper discount rate and factor in the significant potential loss of cultural and historical monuments from climate destruction. These are not the only changes a new working group could make to the SCC; researchers have identified a variety of others. But they’re a good start.
One might argue that it’s unlikely that the future of climate policy depends on this abstract notion of the “cost of carbon.” But in developing arguments about the SCC, the new administration can improve its overall message to the American people, explaining that all necessary steps must be taken to both to ensure a habitable world for this and future generations, and to prevent the erasure of large parts of our history. Furthermore, the SCC will be an important part of justifying carbon regulations to federal judges, particularly those who are hostile to the regulatory state. The Supreme Court’s conservative contingent professes that they place a high value on human life. The Biden administration should too.
