Can climate change be solved by pricing carbon?

The US administration's social cost estimate is about $51, meaning every ton of carbon dioxide spewed from a power plant or tailpipe today is projected to contribute to $51 in economic damages in coming years.

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• As climate change is burning the planet, dozens of nations and many local governments are putting a price tag on greenhouse gas emissions that are increasing flooding, droughts and other costly catastrophes.
• Pennsylvania becomes the first major fossil fuel-producing state in the US to adopt a carbon pricing policy to address climate change.
• It joins 11 states where coal, oil and natural gas power plants must buy credits for every ton of carbon dioxide they emit.
• US President is attempting a less direct approach — known as the social cost of carbon — that calculates future climate damages to justify tougher restrictions on polluting industries.
• Critics say that could crush many businesses.
• Governments elsewhere have moved more aggressively.
• Canada imposes fuel charges on individuals and also makes big polluters pay for emissions.
• It’s one of 27 nations with some kind of carbon tax, according to The World Bank.
• The varied strategies come as scientists warn climate change is accelerating — and all can help reduce emissions.
• But experts say U.S. efforts have been hobbled by its fractured approach.

What’s the price tag?

• US administration’s social cost estimate is about $51, meaning every ton of carbon dioxide spewed from a power plant or tail pipe today is projected to contribute to $51 in economic damages in coming years.
• The state of New York has its own social cost of carbon, updated in 2020 to $125 a ton to account for economic trends.
• By contrast, emissions were most recently valued at $13.50 per ton at auction under the Regional Greenhouse * Gas Initiative in the Northeast, which Pennsylvania is joining.
• A similar “cap and trade” emissions program is in place in California, and one is due to go into effect in Washington state in 2023.
• Canada’s carbon taxes include a minimum fuel charge for individuals equivalent to about $40 per ton.

Why the big differences?

• The social cost of carbon attempts to capture the value of all climate damage, centuries into the future.
• Carbon pricing reflects how much companies are willing to pay today for a limited amount of emission credits offered at auction.
• In other words, the social cost of carbon guides policy, while carbon pricing represents policy in practice.
• In the most efficient world, economists say the two figures would line up, meaning there would be agreement about what climate change damages will cost and the policies used to address them.

Is any of this working?

• Emissions from northeastern states would have been about 24% higher if the carbon pricing consortium hadn’t been in place, according to researchers
• The carbon auctions also have brought in almost $5 billion that can be used to reduce household energy cost increases and promote renewable energy.
• Following lawsuits from environmentalists, President Barack Obama’s administration crafted the social cost of carbon and began including future damage estimates in cost-benefit analyses for new regulations.
• It was used under Obama more than 80 times, including for tightened vehicle emissions standards and regulations aimed at shuttering coal plants.
• President Donald Trump moved to roll back many of the Obama-era rules — and to help justify the changes, the Republican administration cut the social cost of carbon from about $50 per ton to $7 or less. The lower number included only domestic climate impacts and not global damages.
• On its face that might sound okay, but when you think about it, global harms from climate change have implications in the U.S. in terms of the global financial system.

What’s next?

• Without a nationwide cap and trade program, environmentalists and some economists want the government to be more aggressive in using the social cost of carbon to overhaul government energy policy.
• Under Biden, the U.S. Interior Department for the first time is applying climate damage considerations to oil and gas sales on public lands and waters.
• An upcoming lease sale in Wyoming, for example, could result in future emissions of 34 million tons (31 million metric tons) of carbon dioxide. That’s equivalent to more than $1.5 billion in future damages.