| Imagine a $50 price per ton of carbon dioxide this year. Exxon Mobil Corp. has. The oil giant has joined BP Plc, Royal Dutch Shell Plc and others in support of just such a price. It would rise at an annual rate of 5%, plus inflation. In exchange, these companies expect that "all current and future federal stationary source carbon regulations, for example, would be displaced or preempted," according to the Climate Leadership Council. The group's plan is also backed by a number of economists. Now imagine a $125 price per ton of CO₂ emitted today. It would be considered in every rule, regulation and policy enacted as part of President Joe Biden's "whole-of-government" approach to tackling climate change. Exxon and others with lots at stake have done that, too, and it's precisely this scenario some of those supporting the $50 price hope to avoid. The Biden administration has opened up enormous opportunities to push forward an ambitious climate agenda by updating this one number: the social cost of carbon, or SCC. That's why it's nothing less than "the most important number you've never heard of." It has the potential to be the unifying force behind everything from power plant regulations to efficiency standards for cars and household appliances. The SCC is the sum of all climate damages caused by an additional ton of CO₂ emitted right now, in today's dollars. While economists have been thinking about this question for decades, its origin story in formal U.S. rulemaking is instructive. In 2007, a federal appeals court threw out a Department of Transportation decision not to monetize the benefits of CO₂ reductions. "While the record shows that there is a range of values, the value of carbon emissions reduction is certainly not zero," the ruling declared. The Obama administration took that missive to heart, and three years later it published its first SCC. This new era in U.S. climate policy first appeared as an appendix to an energy-efficiency standard for walk-in refrigerators. The number calculated back then was around $30 per ton of CO₂ emitted today, in today's dollars. The Obama administration's main contribution was not so much the number itself but establishing the formal process. A significant update to the social cost of carbon in 2013 raised the central value to around $50 per ton. It's easy to argue that this number is so conservative as to not be a good guide for policy. That's the position of Lord Nicholas Stern and Nobel Laureate Joseph Stiglitz, who published a 75-page report this week arguing that the U.S. should do away with the SCC altogether, and instead use a price calculated by a different formula. Their argument: If you work backward from the climate target of limiting global average warming to 1.5°C and net-zero emissions by mid-century, then you get a much higher dollar value. The number "would be closer to $100 per ton by 2030 than the $50 per ton estimated by the Obama administration." This "target-consistent" approach is one the U.K. and other nations have been following, with resulting carbon prices of between $20 and $100 per ton today. It's an approach consistent with Biden's target of decarbonizing the U.S. electricity sector by 2035. The trouble is it only works if the target itself is the law of the land. That's the case in the U.K., but it's not in the U.S.—and it's highly unlikely that it's going to be. The U.S. instead has a decades-long tradition of conducting benefit-cost analysis in support of major rules and regulations. The dollar value for every ton of CO₂ avoided is the SCC. It's what enters the benefit side of the equation. Biden understands this. On his first day in office, he signed an executive order that calls for a re-start of the SCC process, after it had been scrapped by the Trump administration. This sounds like a return to boring, traditional, and easily criticized economics. It surely seems less ambitious than limiting emissions in a way to avoid global warming of more than 1.5°C, by adopting Stern and Stiglitz's $100 by 2030.
But the boring approach to putting a federal price on carbon might provide surprising results. Simply re-running the exact same process used by the Obama administration—with the same logic and limitations but one tweak—would lead to an SCC of $125 per ton in 2020. The difference from the $50 price is a lower rate of converting future damages into present dollars, matching what we see in the world today. New York State did just that recently. Its SCC? $125 per ton. More important than the specific number is re-establishing a scientifically and economically credible process. That includes seeking broad input, updating estimates of climate damages, reappraising climate risks and addressing environmental justice issues head on. The new administration has a real opportunity to do so, given another step Biden took on his first day in office: modernizing regulatory review. Together with a group of colleagues, I have written a set of eight priorities for calculating the SCC, published today in Nature. The emphasis is on process, not on the resulting number. As boring as it sounds, bringing the best science and economics to the process is indeed the most important step. The fact that the resulting number might be well above even the $125 is important for climate action. More important is the resulting durability of policy that withstands legal scrutiny, potentially up to and including the U.S. Supreme Court. Doing so can help re-establish science-based policymaking and create a durable U.S. climate policy that goes well beyond the next four years. Gernot Wagner writes the Risky Climate column for Bloomberg Green. He teaches at New York University and is a co-author of Climate Shock. Follow him on Twitter: @GernotWagner. This column does not necessarily reflect the opinion of Bloomberg LP and its owners. Like getting the Green Daily newsletter? Subscribe to Bloomberg.com for unlimited access to breaking news on climate and energy, data-driven reporting and graphics, Bloomberg Green magazine and more. | 
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