Greenhouse gas emissions cause climate change, and climate change has economic costs, and human society will have to pay these costs in one way or another. Droughts, floods, fires, increasingly severe storms, changing rainfall patterns, habitat destruction, sea level rise, species extinctions, these are some of the effects of climate change. These things cause enormous damage to human lives, leading to crop failures, drowning of coastlines, climate refugees, destruction of buildings and infrastructure, and much more. These aren’t only effects for the future as all of these are already becoming visible, with wildfires intensifying, parts of Louisiana sinking into the ocean, and hurricanes more powerful than ever before. What we have seen so far is from less than one degree Celsius of warming, and current trajectories put us on a path to 3 degrees or more of warming. Right now, those making the pollution don’t have to pay for the effects that their pollution causes, which is distinctly unfair. When no one has to take responsibility and pay for the costs of climate change, that damage is still going to be done and everyone will still have to pay. It may not be through a direct fee, but instead through higher insurance, lower incomes, increased taxes to pay disaster relief, and all sorts of other indirect pathways.
Accounting for all this damage that greenhouse gas emissions do to society and the world is what the social cost of carbon is about. Scientists can tally up all of the damage and costs that we have already endured, and can estimate how much continued climate change will cost into the future. Modeling at a global scale can then allow an estimate how much each ton of carbon dioxide will contribute to global warming. Take the total damage estimate (in dollars), divide it by the total greenhouse gas emissions (in tons of CO2 equivalents) and you get a social cost of carbon. This is the cost to future human society for the damage that each ton of CO2 emitted today will do.
So how many dollars of damage does each ton of carbon dioxide do? This is something that is being hotly debated both scientifically and politically. The world is complex, climate change is complex, economics are complex, and so figures can vary tremendously just by tweaking one’s starting assumptions. The US government during the Obama administration set this value at $45 per ton of CO2 (for a more practical discussion, see here). The Trump administration, using a political rather than scientific calculus, set the social cost of carbon at $1 to $7, while some newer scholarship estimates that the value for the United States is much higher, at $417. While we can’t know precisely what this figure is, when politics is taken out of the picture the scientific estimates are mostly higher than $100 per ton.
So what exactly does this mean? It means that all the things that we do which cause carbon pollution should cost more. By way of analogy, the current status quo is like not having a system that requires people to pay for garbage pickup or sewage disposal. They buy food and other goods, and when they have garbage they just throw it into the street saying, “It isn’t on my property anymore, it isn’t my problem.” That used to be the case for garbage, sewage, all sorts of wastes. But then we decided as a society that the negative side effects of having raw sewage in the streets and garbage piles all over the place just wasn’t acceptable. We decided that if people were going to make waste, they also had to be responsible for cleaning it up. So it goes with a cost on carbon, that this price is essentially what it should cost to clean up that pollution. We are now at a point where we as a society need to decide that it isn’t acceptable to let people spew as much CO2 as they want without paying for the cleanup.
But to show where the analogy breaks down, look at who is affected. With garbage and sewage, these are local problems, and the negative effects are visited on the very same people that are polluting. This isn’t the case for carbon emissions, where the negative effects are distributed worldwide. This means that one has to look for solutions that can deal with the nature of the problem. One of the most promising solutions is a carbon tax.