Why a climate economist is giving carbon's 'social cost' a second look

For decades, William Nordhaus was the voice of climate-change incrementalism: a carbon tax to guide markets in the right direction was the right way, he argued, not aggressive intervention.

But the Yale economist, whose work was sometimes seized upon by the business community as evidence that governments should put off any action at all, has been having second ideas. This December, he issued his starkest revision yet, warning of the sluggish pace of global emissions policies and the tall task represented by the Paris Agreement’s goals.

“[I]t will be extremely difficult to achieve the 2°C target of international agreements even if ambitious policies are introduced in the near term,” due to lack of access to necessary technologies, he wrote in a discussion paper published last month. A 2-and-a-half degrees Celsius target, he adds, is feasible but would require “extreme virtually universal global policy measures,” even with shrinking odds that governments will enact the sort of strong policy responses necessary.

The prognosis is a strikingly urgent one from a pioneering climate economist and father of the carbon tax, whose cautious evaluations of the risks posed by global warming have been seized upon by climate skeptics and pro-business boosters in the past.

And it may highlight how a lack of authoritative models for calculating the economic risks of climate change could be holding back the kind of action that could be necessary to stave off global warming. 

One key measure for governments’ climate decision-making is the “social cost of carbon” – an estimate of economic damages per ton of emissions. Under former President Obama, the federal government put it at $40 per ton, a fairly conservative figure obtained by averaging Dr. Nordhaus’s estimate with that of other climate economists.

“There’s quite a bit of range in what the social cost of carbon is,” says Christopher Knittel, an economist and director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology, “and it depends heavily on which model you’re using. I’ve seen estimates as low as 10 and as high as 150. There are a lot of uncertainties, so actually nailing the number down is going to be difficult." 

“Climate deniers have used that fact as a way to inject uncertainty and argue that we shouldn’t do anything, because the number is uncertain,” he tells The Christian Science Monitor. “But if you think about it from a risk-insurance perspective, that uncertainty is likely to lead us to want to do more to guard against very high numbers.”

For decades, Nordhaus advocated for a relatively modest carbon tax in the near term, to be followed by more substantial reductions as time went by – the idea being to limit economic disruptions that could make the whole project harder to carry out, as Bloomberg notes.

But in recent years, as his models have changed to assign more risk to extreme weather events and more value to the natural world, he has begun to call for stronger and more immediate action. In his latest analysis, his estimate of carbon’s social cost is 50 percent higher than in his last model, from 2013. And today’s delays in action, he concludes, are making tomorrow’s efforts more expensive.

“The future is highly uncertain for virtually all variables, particularly economic variables such as future emissions, damages, and the social cost of carbon,” he writes. 

“It might be tempting to conclude that nations should wait until the uncertainties are resolved, or at least until the fog has lifted a little. The present study finds the opposite result.”

That revised idea of social cost mirrors a larger pattern in climate research, says Mark Jaccard, professor at Simon Fraser University’s School of Resource and Environmental Management in Vancouver.

“Everybody has been bumping upward the social cost of carbon,” he tells the Monitor.

Under the Obama administration, he adds, official estimates of social cost were an important part of Environmental Protection Agency regulations on coal and vehicle emissions. That means that Nordhaus’s new estimates “should have an effect on US policy.”

“But right now,” he says, “all bets are off.”