Cass Sunstein in Bloomberg addresses the debate over valuing the social cost of carbon.
“This month, the administration provided a big part of the answer with a new report from its Interagency Working Group on the Social Cost of Carbon, which is intended to capture in dollar terms the damage from 1 ton of carbon emissions … The central value is $36.”
“The working group argued forcefully that if all countries set policies only on the basis of domestic effects, their emissions reductions would end up being ‘economically inefficient,’ because no country would take the slightest account of the harms that it imposed on others. If the U.S. adopts a global estimate, on the other hand, it ‘can signal its leadership’ in the effort to obtain international cooperation on emissions reductions.”
“Many environmentalists object that the discount rate [of 3%] is unfair to future generations and that a far lower rate is needed to hedge against the risk of ‘climate catastrophes.’ The working group responded that the 3 percent rate is itself pretty low and that the range, with $105 at the high end, reflects the risk of catastrophe.”
“To be sure, the uncertainties involved here are real, and reasonable people can disagree with the working group’s choices and arguments. But it’s also true … that the working group has engaged in a highly technical — rather than political — exercise, building on existing academic research and promoting transparency about its assumptions and limitations.”