In a recent WRI blog, Ruth Greenspan Bell makes some interesting arguments around the complexities of using the social cost of carbon (SCC) in cost-benefit analysis to inform climate change policy in the United States.
The SCC is typically defined as the full marginal cost (including environmental, health and social damages – expressed in monetary terms) from emitting one additional tonne of carbon. Alternatively, it can be interpreted as the benefits to society from avoiding the full costs associated with each additional tonne of carbon emitted.
Ruth states, “While monetizing environmental costs and benefits is always a challenge when conducting cost-benefit analysis, the analysis central to estimating SCC requires that the modelers make assumptions that go well beyond the usual boundaries of science or economics. The exercise involves many judgment calls that are largely hidden in complex economic models and that may be invisible to policymakers and stakeholders.”
We at Green Metrics are big proponents of accounting for the full social costs and benefits associated with decisions or policy options. It it one of our core areas of business, which we feel can really help improve public and private sector decision making.
That said, Ruth’s arguments raises an issue we often struggle with. Once the analysis is reduced to a single number (such as a SCC of $21 per metric ton of CO2) and made public, the number often gets manipulated and used in ways it was never intended for. For this information to be truly useful we need to ensure that opportunities exists “to discuss and directly debate the underlying complex value choices” that go into monetizing environmental costs and benefits.
This is something we at Green Metrics are working towards.