In May 2013, the United States government significantly altered a key economic measure used to assess the damage caused by carbon emissions and the benefit of carbon reduction, increasing the “social cost of carbon” (the SCC) by over 60% from U.S.$22 to U.S.$36 per tonne of CO2. This figure is meant to approximate externalities, such as property damage from extreme weather or changes to agricultural productivity and human health, associated with carbon emissions and global warming. In fact, the Sustainable Energy and Environment Coalition of the House of Representatives suggests that extreme weather events stemming from climate change in 2011 and 2012 cost U.S. taxpayers approximately U.S.$136 billion, or U.S.$1,610 per taxpayer.
The change reflects updated scientific and economic models of climate change and it is expected that it will have a large impact on the cost-benefit analysis of government action. Government policies or projects that lead to cuts in carbon emissions will appear more valuable, while those that lead to more carbon pollution will seem more costly. For example, the U.S. government states that recent changes to microwave efficiency standards are expected to generate total net benefits of U.S.$4.6 billion using the new SCC measure, compared to U.S.$4.2 billion using the previous figure. Even more significant is the way in which the new SCC value will impact proposed fossil fuel infrastructure projects.
Canada’s approach is largely consistent with that of the United States. Environment Canada uses an SCC value of Cdn.$28.44 per tonne of CO2 when conducting regulatory impact analysis or project reviews and is reported to be in the midst of an evaluation of this figure given the change south of the border. As such, industry participants on both sides of the border should carefully consider the impact of these changes on proposed projects.
Tamir Birk is a 2013 Summer Student.