New Study More Than Triples Estimated Costs of Climate Change Damages

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Yves here. It seems weirdly unsurprising that the estimates of the cost of carbon emissions used by the Federal government look to be way too low. After all, we are a big producer of dirty energy sources. Climate change be damned.

More seriously, you’ll notice that the article focuses on using a discounted cash flow model, which is the same approach used by Nicholas Stern in the 2007 IPCC report. He had to use a discount rate of 0.5% to make climate change look dangerous because the models then didn’t show really bad stuff happening before 2100.

Personally, I believe the discounted cash flow approach is all wrong. First, it’s used for making investment decisions when preventing climate change is more like insurance, and people knowingly pay more than the expected value of their odds of loss to avoid catastrophic outcomes. Second, a discounted cash flow model is used to compare competing investments. It’s not as if we have more than one planet to live on (and don’t get me started on Mars, that’s a squillionaire talking point to justify current negligence). But  people would rather have bad metrics than none at all.

By Dana Nuccitelli, research coordinator for the nonprofit Citizens’ Climate Lobby,and an environmental scientist, writer, and author of ‘Climatology versus Pseudoscience,’ published in 2015. He has published 10 peer-reviewed studies related to climate change and has been writing about the subject since 2010 for outlets including Skeptical Science and The Guardian. Originally published at Yale Climate Connections

A peer-reviewed analysis by two dozen experts more than triples – from $51 per ton of carbon dioxide to $185 per ton – the federal government’s estimate of the “social cost of carbon” (SCC).

The climate science, economics, and statistics experts’ paper in the prestigious journal Nature updates the best estimate of how much each ton of carbon dioxide costs society as a result of climate change damages. Their conservative best estimate is 3.6 times higher than the $51 value currently used by the federal government, and roughly 30 times more than the value previously adopted by the Trump administration.

It’s a critically important number because federal agencies by law are to consider the costs and benefits of proposed regulations. For climate pollutant regulations, the benefits of future climate damages avoided are estimated via the SCC. A higher value would result in larger benefit-to-cost ratios, justifying more aggressive federal climate regulations.

“It suggests there are many more actions we can take to curb carbon emissions that are going to be on the table that were not on the table before,” Stanford University economist Marshall Burke, not involved in the study, told the Associated Press.

Choosing the Right Discount Rate Is Critical

The single largest factor contributing to the increase in the estimated SCC is the “discount rate.” This concept is premised on the premise that wages, the economy, and wealth grow over time – a trend that is expected to continue. Having an extra dollar today that can accumulate interest over time may thus be considered more valuable than a dollar received in the future. But in the case of an intergenerational problem like climate change, a high discount rate can also effectively discount the welfare of people born in the future.

Previous best estimates of the SCC – including the current federal value of $51, originally set by the Obama administration – have tended to use a discount rate of 3%. In 2017, the National Academy of Sciences published a report recommending how estimates of the SCC should be improved, including revisiting the question of discount rates.

As three of the new Nature study’s co-authors wrote in 2021, the prior 3% choice was based on the average interest rates of U.S. treasury bonds from 1973 to 2003, and is thus outdated. A 2017 brief from the White House Council of Economic Advisors found that based on lower interest rates in recent decades, the discount rate should be revised to about 2%. A 2018 study also found “a surprising degree of consensus” for a 2% discount rate in a survey of more than 200 publishing academics.

This one change – revising the discount rate from 3% to 2% – by itself more than doubles the estimated SCC. How so? Because the bulk of climate damages occur decades in the future, and so discounting the value of future climate damages can significantly suppress estimates of the SCC. Using a 2% discount rate, the study finds with 90% confidence that the SCC is between $44 and $413, with the best estimate pegged at $185 per ton.

The Trump administration had moved in the opposite direction, using discount rates of 3% and a whopping 7% in its efforts to dramatically lower the estimated SCC to near-zero.

Updated Climate Change Damage Estimates

As recommended by the 2017 National Academy of Sciences report, the authors of the new Nature study also incorporated updated research regarding damages from four categories of climate change impacts: premature deaths caused by extreme heat, impacts on agricultural yields, energy use in response to temperature changes, and sea-level rise encroaching on coastlines. The former two impacts dominated the climate damage estimates, with heat-related mortality and reduced crop yields each accounting for nearly half of the total climate costs.

Contributions by category to the updated SCC estimate, from Rennert et al. (2022), Nature.

The Nature study authors projected that net building energy use changes would result in relatively low costs based on a 2018 study. The explanation: While summer cooling demand increases in response to rising extreme heat, demands for in-door warming decrease as the world warms.

The authors also projected sea-level rise damages to be relatively small, based on a 2016 study that evaluated the most cost-effective way each region could adapt to rising seas through a combination of coastal retreat and investments in coastal defenses like sea walls. But that calculation assumes every country will adapt optimally, and does not account for the psychological and cultural losses associated with abandoning homes and other resources that are swallowed by the sea. The study found that a lack of optimal adaptation would increase sea-level rise costs by as much as a factor of seven.

The Nature study based agricultural costs on a 2017 study that incorporated more than 1,000 recently published estimates of staple crop yield responses to changing temperature, rainfall, and carbon dioxide levels. The authors found that corn, wheat, soy, and rice yields are all projected to decline in hotter global temperature scenarios.

Finally, they based heat mortality costs on a 2022 study that evaluated recent research on a broad set of heat-related health outcomes, including cardiovascular, respiratory, and infectious disease categories. One complication in this category involves having to translate an avoided premature death into a monetary value. Researchers approach this question by evaluating how much people would be willing to pay to reduce their risks of premature death in a given year. Heat mortality costs are thus not direct impacts on the economy, but rather the monetary value people place on living longer, healthier lives as a result of their being subjected to fewer punishing extreme heatwaves.

The Nature study authors report that these updated climate damage assessments would increase the SCC by almost 60%, although the revised discount rate is the primary factor behind its more than tripling to $185 per ton.

Why This Is Still a Conservative SCC Estimate

The study authors did not incorporate numerous other extreme climate damages such as worsening wildfires, droughts, inland floods, hurricanes, food and water insecurity, the mass migrations that such disasters could trigger, or the resulting suffering and trauma that are difficult to quantify in monetary terms. Even the costly crop yield loss estimates include just four major staple crops that account for 20% of global agricultural production. As study co-author Frances Moore noted on Twitter, “There is still a lot missing from that list” of modeled climate damages.

Additionally, a lower discount rate could be justified, for example if climate damages slow economic growth. Or perhaps future generations would prefer to sacrifice some monetary wealth in exchange for a world with less extreme weather disasters and a stabler climate. The Nature study estimated that applying a 1.5% discount rate would raise the SCC to more than $300 per ton.

What Happens Next?

The Biden administration’s updating of the federal SCC was temporarily derailed in February by a lawsuit brought by several Republican attorneys general, but their challenge was thrown out a month later by a federal appeals court. The interagency working group performing the update may take the results of the new Nature study into account.

The revised federal SCC, which is expected to be published soon, is anticipated to significantly increase the value from the current $51 per ton, and may yield an estimate similar to that in the Nature study. As the new paper’s authors wrote, such an action would justify stronger federal regulations on climate pollutants:

“Our higher [SCC] values, compared to estimates currently used in policy evaluation, substantially increase the estimated benefits of greenhouse gas mitigation and thereby increase the expected net benefits of more stringent climate policies.”

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  1. Steve H.

    These studies are a f’ing joke.

    Take the known mass of the universe. Put a price on all the gold, tellurium, whatever. Divide by the total known biomass in the universe. If that’s too much just go for carbon in the Milky Way (11 billion trillion trillion tons (or 11 with 33 zeros after it)). Total carbon on Earth is 1.85 billion billion tonnes. Move the decimal and that’s, oh, fuggitabuttit TRILLIONS.

    Point being, the only practical use of these studies is to rejigger the carbon credits rate. Al Gore’s private jet and whatnot.

    1. Ignacio

      Those studies that try to translate the damage into dollars strike me as old-fashioned economic-ism and GDP obsession that tries to rationalize climate change as if we were living in the fifties, thought this time disguised as SSC instead of GDP. IMO, those are counterproductive because, for instance, they bring the implicit idea that there might be monetary solutions to climate change.

      1. Michaelmas

        they bring the implicit idea that there might be monetary solutions to climate change.

        Which is their whole objective.

        There’s a whole ‘ecosystem services’ and carbon credit financial ‘economy’ the rentiers are trying to erect.

      2. Steve H.

        Thank you Ignacio, that implicit idea is the deep problem. It’s like the lens is flipped and is looking at the Earth, ‘See, the problem is not so big’ while thinking the lens border actually excludes the vasty dark.

  2. Kent Y

    Just total crap:

    The explanation: While summer cooling demand increases in response to rising extreme heat, demands for in-door warming decrease as the world warms.

    The extremes at both ends increase, so you actually need more of both. See: Texas snowpocalypse.

  3. Ghost in the Machine

    I agree that this is a completely inappropriate type of analysis for the problem. If it is going to be used, then the discount rate should be very low. All these analyses assume growth; we will be richer and better able to deal with problems in the future. But as resource constraints and collapsing ecosystems bite (bigly!), the economy will actually shrink. It already is overstated in my opinion. Is paying more for houses, military grift, damage repair, and medicines for our poor health wealth? The discount rate should be zero or actually negative, as it will be harder to deal in the future.

    1. BlakeFelix

      Ironically, I think that if we take a zero discount rate and price carbon at that, then we will get a handle on carbon emissions, avert catastrophe, and be proven wrong when the economy thrives in the long term and the discount rate proves to be higher than zero, and if we use a high discount rate and/or don’t price or control carbon emissions then we will be wrong as the real discount rate will turn out to be negative and we will suffer greatly.

  4. flora

    Not to be contrarian, but, get back to me on this when China and RU do the same. Otherwise, the current EU predicament is our future, while China and RU keep increasing CO2 output, becoming manufacturing powerhouses, and raising their standard of living. My 2 cents.

    1. drumlin woodchuckles

      That is their plan. But they will push it to the point where global heating degrades their own ecosystem livability as well as ours. Then they too will discover the wisdom of Wise Old Indian when he said . . . ” When the last can of caviar ( or Chinese equivalent) is gone from the last shelf of the last GUM store ( or Chinese equivalent) in the world, then the Industrial Modern Man will discover he can’t eat money.”

      Why do we keep calling it “climate change”? ” Climate change” was invented by Frank Luntz to make global warming sound friendly and cuddly and not-a-problem. Why do we keep honoring the linguistic engineering genius of Frank Luntz? Why don’t we all start calling it global warming again? Or global heating once it gets hot enough?

    2. Anthony G Stegman

      I think you are a bit confused. China’s CO2 output may be increasing, but that is in service to Western economies who rely on China’s labor to produce economical goods. So, it is fair to say that China’s increased CO2 emissions is raising living standards in the West. Think about all the relatively inexpensive goodies available to shoppers in the West. Without China and other low cost labor locales these inexpensive goodies would not be available. The same can be said for Russia’s provisioning of inexpensive natural gas.

      1. flora

        Oh, I don’t think I’m confused. My new “inexpensive goodies” do not include health care costs, higher education costs, food costs, or housing costs. (aka inflation calculated minus the cost of energy, food, and housing.) / ;)

      2. drumlin woodchuckles

        Am I confused? Are you sure?

        We did not ask for our rulers to move our industry to China/Mexico/Bangladesh/Vietnam/etc. ( Though the big recipient is China). Several million Americans were disemployed by dismantling their workbenches and workplaces, packing them all into crates, shipping them all to China and rebuilding them there. Those several million Americans saw their standard of living go to near-zero. Several million more Americans whose restaurants, laundromats, dog-groomers, etc. lost all their business when their thing-making customers lost all their jobs . . . lost their standard of living too.

        Any jobs they might have gotten since then are paid a China wage, to go along with the China price of “goods” at Walmart, where a lot of the workers are paid so little that Walmart coaches them on how to get food stamps and so forth. ( Or is my memory obsolete?)

        And considering that a unit of thingmaking output in China releases more CO2 than the equivalent unit of thingmaking output used to release in the US when it still happened in the US, the ChinaGov and our Free Traders have colluded to increase the overall net-net amount of carbon skyflooding per unit of thingmaking output, and the amount of carbon skyflooding overall.

        Which, again, is something ordinary Americans did not ask for. And therefor have zero guilt in causing.

        About those inexpensive goodies . . . melamine milk and melamine pet food, fake counterfeit tablets, childrens’ toys with lead paint, high-sulfur sheetrock which offgassed sulfur dioxide gas into the humid air of every Florida home this sheetrock was installed in . . . . forming sulfuric acid in the household air and destroying household appliances ( ) . . . shall I go on? Those are some mighty high-cost “inexpensive goodies”.

        Chinese goods have degraded America’s standard of living, and will destroy the pathetic vestiges of our manufacturing economy all the way to zero if we don’t stop the International Free Trade Conspiracy from using Chinese goods to achieve that goal. Which is China’s goal too, by the way.

        ( And as to Russian natural gas, America does not use it. We use our own fracked-up natural gas. Perhaps this applies to Europe and especially to China tomorrow once all the pipelines are built to ship a Nordstream 1 + 2 + Yamal + Turkstream worth of Natural gas to China.)

        Are you sure it is I who is confused?

        1. Jim Young

          I think I remember Sam Walton saying what so many seem to remembers as Walmart would always favor American made goods.

          What few seem to remember was the last part where he said, “If they are within 5% of the Chinese price.”

  5. Dave in Austin

    Occasionally in college we’d get extra credit questions like this:

    What is the present discounted cash value of an investment to stop a meteor which may end human life?

    Assume that the chance of such a meteor strike is .00012%/year plus-or-minus .000067%/year. Assume that each billion today dollars invested/year in that effort increases the 50% percentile effectiveness of the defense by .000004178%/year +/- .000000675%year.

    Create the equation based on these assumptions and determine the optimum investment in the 2024-2100 time period assuming that human existence/year has a value of $25.00 for each person on Earth at this moment (9.25 billion people). For two more extra credit points determine how sensitive the equation is to a changes in assumptions.

    Note the “may” in the first sentence, which renders both the question and the solution indeterminate. The Mayists and the Coulderites have taken over the world of prediction.

    Input-output analysis is a useful tool for predicting how well-understood systems will respond. They are little more than propaganda when applied to systems with many unknowns, poorly understood inputs and few if any well-understood relationships. That said, the use of models that look at the near future of the climate are the best tool we have.

    Unfortunately they yields results which are unpalatable and impossible. Carbon emissions must decrease and the first world must reduce carbon output/person; the third world must not increase total world output. Fewer babies should be a goal but fewer people in the labor force is a crisis. The rich must stop flying… but grandma has the right to visit the grand-kids. Poor Americans must learn to live on soy hamburgers while sirloin is served at the UN Conference on Emergency Food Aid for Somalia.

    Cognitive consonance is on the menu, calories without nutrition. We all consume it with relish.

  6. Bruno

    The “discounting” of the future is one of the worst fallacies besetting the human mind. As the great economist Joan Robinson noted in her wonderful little book “Economic Philosophy” :–>There is no inherent reason why a holiday in France would be worth more or less to you a month from now than it is today<

    P.S. "But you may have died by then." If so, then the value of your previous "good" plus its accumulated "interest" has come to absolute zero no matter how long since it started "accumulating interest." Outside aging-process limits as for wines and cheeses, passsage of time adds no value.

  7. Bruno

    “the “discount rate.” This concept is premised on the premise that wages, the economy, and wealth grow over time – a trend that is expected to continue.”

    As I just pointed out, discounting for time is utterly fallacious. But if you accept it for the sake of discussion, the implication is exactly the opposite because it is the opposite of its “premise” that is the case. The already advanced planetary ecological [ecocidal] crisis means that “wages, the economy, and wealth” are and will continue to be declining, not growing, and therefore a discount rate for future environmental costs has to be *negative* because they will be imposed on a *smaller* resource base.

    1. NoFreeWill

      Exactly. All this damage that they know will happen, which is why they are trying to estimate the costs, and they don’t expect the economy to do worse and even possibly collapse almost entirely? That’s insane logic. If we are discounting against extinction or collapse than we should spend literally as much money as possible today to prevent it since if either happen the USD won’t exist lol

      Boomers who happened to be born in the most fortunate times in human history are continuing to project that growth forward in the face of all these disasters… we are already in the age of regress (see US living standards & life expectancy declining) and they are pretending we still live in the age of infinite progress.

      1. drumlin woodchuckles

        Perhaps they are all just giving us a bunch of velcro tarbaby tinkertoys to play with while the people who pay them for these studies prepare to make their escape into silicon billionaire bunkers or New Zealand or Paraguay or Space Colonies or wherever.

      2. Anthony G Stegman

        I don’t understand your statement “Boomers who happen to be born in the most fortune times in human history…”. Who are these people you speak of? I happen to be part of the Baby Boom cohort, but in no way do I feel that I was born in the most fortunate time in human history. Even just a cursory glance at what has transpired globally since the late 1940s will provide ample evidence that those/these times aren’t exactly the greatest times. In fact, they are quite perilous times.

        Economists always make assumptions. One of their main assumptions is things will continue as before. Onward and upward to infinity. Of course this won’t happen, but all of their models assume it will because capitalism requires that they do.

    2. Thornton Parker

      In addition to the points already made, there are two other things wrong with discounted cash flow. First it is used from the point of view of the investor, but from the national or International point of view, the actual interest rate is zero, because for every borrower, there is a lender and interest transactions net out. Second, if the point of view is the US government, the interest cost is also zero because the government creates new dollars. at no cost when it runs budget deficits by paying them into the economy.

      Global warming and climate change decisions must be made on the basis of the real world resources, like the number of engineers, welders, bulldozers, concrete, and safe land available to any location or region.

  8. CaliDan

    Now I’m just a lowly artist-type and not a big, fancy economist, but, if I’ve got my maths in alignment, then the cost of an uninhabitable planet is all of the money, right?

  9. notabanker

    Using a 2% discount rate, the study finds with 90% confidence that the SCC is between $44 and $413, with the best estimate pegged at $185 per ton.

    The study authors did not incorporate numerous other extreme climate damages such as worsening wildfires, droughts, inland floods, hurricanes, food and water insecurity, the mass migrations that such disasters could trigger, or the resulting suffering and trauma that are difficult to quantify in monetary terms. Even the costly crop yield loss estimates include just four major staple crops that account for 20% of global agricultural production.

    Gee, I wonder which side of the variance it will come out on.

  10. Anthony G Stegman

    What about the costs due to the loss of habitat, the loss of bio-diversity, the loss of clean water and clean air? How much is all that in discounted dollars? $500 trillion? Perhaps more?

  11. Anthony G Stegman

    When it comes to killing a human being the punishment for the perpetrator is generally not influenced by the so-called value of a person. If I am convicted of murdering a dirt poor peasant I should expect to receive no worse punishment than if I am convicted of murdering a billionaire. After all, a human life is considered priceless (at least in theory).

    However, when it comes to killing the planet the calculus is different. An intact ecosystem is not considered priceless. A clear running stream is not considered priceless. Unspoiled wilderness is not considered priceless. This is where the problem lies, and this why the world is facing so many crises. Unless and until there is a change in thinking planet earth is doomed, and no application of discount rates will save it. Quite the contrary.

    1. drumlin woodchuckles

      It is not really Earth which will be doomed by organized human non-change of course. It is organized humanimal-kind of the hypercivilized variety.

      Earth got along before it met us, it’ll get along fine when we’re gone.

      ( Adapted from the country song title . . . ” I got along fine before I met you, I’ll get along fine when you’re gone.” )

  12. drumlin woodchuckles

    Is it possible to do things without using coal/gas/oil and/or renewable electric power? Anything? Even one thing?

    Yes, it is possible to do a few things without mechanical power inputs, either fossil-fuel derived or renewables-derived. We know it is possible because we know it was done.

    Here is a fascinating little item about a no-moving-parts/ no motors/ no etc. chill-preserver and chill-maker from ancient Iran, in the ” TodayILearned” subreddit. It is titled . . . ” TIL in 400 BCE Persian engineers created a ice machine in the desert.” Here is the link.

    And here is the wikilink that it links to . . .
    And the article at that wikilink itself contains other links to other things invented in ancient or medieval Iran. Such as a special form of Ultra Specialized Performance Concrete developed for this particular “ice machine” fabrication application.

    The historical record abounds with these sorts of forgotten or disregarded technologies which could be studied and used one way or another in our own place and time right now, to do things with little or no mechanical power input after the initial building of the device. This “ancient ice machine” is worthy of showing up in Low Tech Magazine or No Tech Magazine. I don’t know if that is where the original TIL poster first found it at.

    Our search for a way out has been dominated by “innovation”. We are told we have to “innovate”. We have to achieve “breakthroughs”. But this linkload of information goes to show that we can also solve some problems or at least buy some time by reviving things that worked in the past and can work in the present. We need a word for that. I would suggest “retrovation”. We need to “retrovate”. ” That’s very ‘retrovative’ “. etc.

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