Pricing Carbon

Pricing and reducing CO2 and other greenhouse gases are critical steps in maintaining a livable climate on our planet.  Rather than relying on supply and demand within the Voluntary Carbon Market, one of Earth Deeds’ core innovations is pricing carbon emissions based on their estimated actual costs to society.  Let’s explore both options in turn. 

Pricing Carbon within the Voluntary Carbon Market

Carbon offsetters such as TerraPass and NativeEnergy sell the claim that a certain amount of funding will prevent a certain amount of CO2 from entering the atmosphere.  Carbon credits are sold to “offset” greenhouse gas emissions from individuals and organizations.

Pricing carbon in this way has at least four challenges.

  1. Perverse Incentives: Offsetting companies want to pay projects as little as possible to purchase the rights to claim the mitigation aspects of their activities so they can make the biggest profit when selling those credits on the Voluntary Carbon Market. Profits thus take priority over true impacts.
  2. Does Not Address Actual Impacts: As the IPCC reports, climate change is already leading to extreme weather events, species extinctions, and resource scarcity. The West Antarctic ice sheet is now in irreversible retreat, likely resulting in a 12-foot rise in sea level. And these crises will likely lead to social unrest, mass migrations, and interpersonal violence due to resource scarcity. Carbon offsetting, in and of itself, does nothing to recognize or address any of these larger impacts.
  3. Physically Limited: If by some miracle, everyone on the planet suddenly committed to physically offsetting their emissions, we would quickly run out of projects to support.
  4. Mentally Limited: If, by an even larger miracle, we were somehow able to sequester all of our emissions, our deeper systemic structures and mindsets would simply recreate the problems.

Instead of claiming that we can neutralize our climate impacts by paying a market-based fee for carbon, we need to recognize that, as long as humans continue to emit greenhouse gases, our activities can never be carbon neutral. Rather than “offsetting”, Earth Deeds has developed onsetting as an alternative approach that prices carbon emissions based on their true costs and allows carbon funds to be directed to meaningful community-based projects.

The True Cost of Emitting Carbon

So, what is the true cost of emitting carbon? A leading estimate is the “Social Cost of Carbon,” (SCC) a figure developed by the U.S. government that takes into account the social as well as economic costs of CO2 emissions. In 2009, the Obama Administration created an Interagency Working Group (IWG), including the EPA, DOE,  and ten others, to standardize the SCC across federal agencies. Using three broad economic models and the best available scientific data, the IWG recommended figures that have been since used in setting CAFE standards, DOE energy efficiency standards, and other policies.

Developing the SCC is highly complex and requires many assumptions and judgment calls. Even using current knowledge from climate science, engineering, technology, and other fields of study, scientists cannot definitely predict which pollution levels will lead to particular impacts. It is even harder to predict or monetize wider consequences such as civil instability or conflict, mass migrations, agricultural disruptions, not to mention loss of human life or entire species. Accepting these limitations, the IWG created three Integrated Assessment Models (IAMs) that incorporated a wide range of factors such as:

  • Effects of higher temperatures on agriculture, forestry, and fisheries
  • Vector-borne diseases such as malaria and dengue fever
  • Effects of extreme weather events and sea-level rise on coastal property values
  • Lost ecosystem services and biodiversity
  • Adaptive measures (e.g. engineering crops to withstand higher temperatures)
  • Potential benefits (e.g. CO2 fertilization effect and some increased productivity)

Averaging estimates across the three IAMs, the IWG developed a central estimate of $24 per mT of carbon pollution emitted in 2015. In 2013, the IWG revised all of the IAMs based on new scientific data and updated their central estimate to $37 per tonne. The Current SCC in 2017 is $45/mT, which will continue to rise each year due to the fact that delays in responding will likely lead to more severe damages. See below for more details on how we calculate current SSC.

Another reason the SCC may be too low involves the discount rates incorporated into the IAMs. Discount rates assume a continually growing economy in which a dollar today will be worth less in the future. The IWG selected three discount rates of 2.5 to 5% a year with a central rate of 3%. The higher the rate, the less significant future costs become. For example, at 3%, a $1,000 cost or benefit 25 years in the future would be valued at less than $500 today and at 5%, it would be valued at less than $300.

As climate change science progresses, it seems less and less likely the economy will continue to grow at current rates and that future generations will be much better off. There is also the ethical issue of enjoying lifestyles today that may very well harm our childrens’ children. In both cases, lower or even negative discount rates may be justified, which would make the SCC skyrocket.

The SCC is not perfect. It requires making assumptions about the benefits of climate mitigation that are difficult or even impossible to predict or price. Yet, these are exactly the kinds of questions we should be asking and that governments and scientists should be addressing. We need to continually broaden our understanding of the true value of ecosystems and of civilization itself and act accordingly at all levels – individually, within our families and communities, and within our corporate, political, and academic institutions. The SCC is currently our best measure of the true cost of our climate impacts and it will continue to improve over time.

Current Social Cost of Carbon

To learn more about the SCC, you can check out Earth Deeds Resources Page.

In line with most federal agencies, Earth Deeds uses the central figure of 3% and relies on Table A1 on page 17 of this Technical Support Document to determine the SCC in any given year (see bold column below).  Given that annual SCC values are given in 2007 dollars, we use Line 1 in Table 1.1.9. “Implicit Price Deflators for Gross Domestic Product (under Section 1 - Domestic Product and Income) in the GDP Implicit Price Deflator to calculate inflation from 2007 dollars.  To calculate the current inflation coefficient, divide the most current factor (modify the table to display annual rather than quarterly) by the 2007 factor (97.337).  So, for example, the inflation factor for 2016 is 111.446 ÷ 97.337 = 1.145.  Multiplying this factor by the 2017 central rate of 39, we get $44.65, which we round up to $45mT.

Please Contact Us if you have any questions or suggestions regarding this calculation.

Table A1: Annual SCC Values: 2010-2050 (2007$/metric ton CO2)

5.0% 3.0% 2.5% 3.0% Actual
Year Avg Avg Avg 95th SSC
2014 11 35 55 101 US$39/mT
2015 11 36 56 105 US$41/mT
2016 11 38 57 108 US$43/mT
2017 11 39 59 112 US$45/mT
2018 12 40 60 116 TBD
2019 12 41 61 120 TBD
2020 12 42 62 123 TBD
2021 12 42 63 126 TBD
2022 13 43 64 129 TBD
2023 13 44 65 132 TBD
2024 13 45 66 135 TBD
2025 14 46 68 138 TBD

Carbon offsetting does not address larger issues such as species extinctions, preservation of biodiversity or climate justice.

We need to continually broaden our understanding of the true value of eco-system and of civilization itself and act accordingly.

“We Must ‘Put a Price on Carbon’ and on Climate ‘Denial in Politics’.” - Al Gore

Local Solutions to Global Warming
Subscribe to our newsletter and receive updates and special offers.