Podcast Episode 1.03

Social Cost of Carbon with Tamma Carleton

Professor of Economics at UCSB
Affiliate of the Climate Impact Lab

Hosts Katherine Gorman and James Lawler interview Dr. Tamma Carleton about how to determine the real cost of a ton of carbon and how that number can be used to create policies and regulations.

Featuring:

Tamma Carleton
UCSB

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Tamma Carleton

UCSB

Tamma Carleton is an Assistant Professor of Economics at the Bren School of Environmental Science & Management at UC Santa Barbara and an Affiliate of the Climate Impact Lab.

She joined Bren after a postdoc at the Energy Policy Institute at the University of Chicago. Dr. Carleton completed her PhD in Agricultural & Resource Economics at UC Berkeley where she was an EPA STAR Fellow and a Doctoral Fellow in the Global Policy Lab at the Goldman School of Public Policy. Her research focuses on questions at the intersection of environmental change and economic development.

Hosted By:

Katherine Gorman
Climate Now Host

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Katherine Gorman

Climate Now Host

Katherine Gorman is a podcast host for Climate Now. She has worked for terrestrial public radio stations across the US, and is also co-host of the podcast “The Talking Machines”. She is excited to democratize the climate conversation and to learn and share knowledge from experts in the field.

James Lawler
Climate Now Host

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James Lawler

Climate Now Host
James Lawler is the founder of Climate Now. James started Climate Now as a way to learn about climate change and our energy system. Climate Now’s mission is to distill and communicate the science of our changing climate, the technologies that could help us avoid a climate crisis, and the economic and policy pathways to achieve net zero emissions globally. James is also the founder of Osmosis Films, a creative studio.
Date: 05.17.2021 Running Time: 19 min

TRANSCRIPT

 

Katherine Gorman: (00:02)

You are listening to Climate Now. I’m Katherine Gorman. 

 

James Lawler:

I’m James Lawler. 

 

Katherine Gorman:

The Biden Administration has issued an executive order calling for the updating of the social cost of carbon. 

 

James Lawler: (00:14)

Right. And the social cost of carbon is the number that’s meant to reflect the cost to society in dollar terms for each ton of CO2 emitted by human activity. So it’s a number that’s meant to factor in basically all costs due to anthropogenic climate change. And so, unsurprisingly, it’s not a simple thing to come up with and it’s incredibly important as a policy instrument. 

 

Katherine Gorman: (00:35)

So if a regulation is going to cost the economy, something, we need to also think about the costs it’s saving us due to reduced emissions.

 

James Lawler: (00:42)

The Bush Administration was sued back in 2007 for not taking into account the cost of carbon. So, they put a number in place in 2008, and it’s actually been US policy now to use a dollar number since Obama in 2009, you’re going from $20 per ton of CO2 to about $50 per ton CO2. And the Trump Administration lowered it to about a dollar per ton.

 

Katherine Gorman: (01:04)

To learn more about the social cost of carbon and how it’s evolved and why it’s important, we’re talking today with Tamma Carleton. She’s a professor of economics at the School of Environmental Science and Management at the University of California, Santa Barbara. When we sat down with Tamma, we asked her first how she got to where she is.

 

Tamma Carleton: (01:22)

My journey is a little bit unconventional. I grew up in a very small town in Northern California in the middle of the Redwood forest. And no one in my family had gone to college. So I sort of found my way to college on my own. And then in a very cliche way, just fell in love with economics as a way to take my mathematical inclinations and apply them to the world and have this framework that would allow me to think about how we can shape the world better using mathematical tools. So ultimately I did a PhD at UC Berkeley in the Agricultural and Resource Economics Department, and that’s why I really brought together an interest in agriculture with an interest in climate change. And through my time at my PhD in studying climate change, it became really clear to me that while I was sort of initially motivated by the problems linking agriculture and climate change, that climate just affects so many other aspects of societies and economies. And my research has broadened out beyond the impacts of climate change on agriculture to really think about the many different ways that the climate shapes social interactions and economics.

 

Katherine Gorman: (02:31)

The number of lenses that you’re bringing to this work given the variety of your experience is amazing. So given that and all that you have to draw from, what are the big questions that are motivating your research today in the climate and energy space?

 

Tamma Carleton: (02:46)

Yeah. So the big question is what will anthropogenic climate change look like, but to be a little bit more specific, I’m really interested in who and where are most affected by variations in the climate today and future impacts of climate change. It’s become really clear that different populations are differentially affected by the climate both today in terms of what happens on a hot day in a poor neighborhood in the United States versus a wealthy neighborhood in the United States, as well as what will 2100 look like around the globe and how will India look different than Minneapolis? And so a lot of my work now is trying to bring tools and data from economics and from climate science and from computer science together, to try to understand who is really most affected. And then what can we do with policy to avoid the worst risks of climate change and also help those most vulnerable populations adapt to those changes?

 

James Lawler: (03:42)

I’d love to just actually skip to one of our later questions in light of your description there of the central question motivating your work, what you see as the role of, in particular, the US government in addressing these varying effects of climate change on different populations. And what do you see as the most powerful levers that the Biden Administration has to pull over the next, let’s say, four to eight years.

 

Tamma Carleton: (04:13)

Sure. Yeah. So with the caveat that I’m an economist and not a political scientist, so I think about these problems as an economist would, and I’m sure there’s lots about political dynamics of Washington that I don’t understand. As the US government, we are obviously focused on developing policies that put American interests first. The reason that climate change is such a difficult problem to wrangle from a US policy perspective is that this is inherently a global challenge. So we want to be thinking about American populations, but we know that whether a ton of emissions is admitted in Beijing or in New York, it has the same influence on our global climate. And so the tricky thing here is developing policy that really does put American tax dollars in the right place for America, but takes into account that this is inherently a global problem. What the US does for American policy, thinking about the damages from climate change within America really has an important role for setting the stage for global climate policy. And so I think we have a role here that that needs to balance our position as a leader and as a massive contributor to climate change at the global scale with also choosing policies that put American interests first. 

 

James Lawler: (05:24)

I appreciate that this is outside of your core focus. Can you say a little bit more about that leadership position that the US has, just to expand, or maybe explain what you meant a little bit more with regard to the policies that should be put in place?

 

Tamma Carleton: (05:42)

When we think about emissions reductions within the United States, which we know are costly, we want to think about the costs of pursuing emissions reductions as compared to their benefits. But what’s really important is that the US committing to a given amount of emissions reductions has an effect on what other countries around the world do. And as we talked about, me sitting in America, I’m going to be benefited by emissions reductions committed by China or India, just as much as I am from those within the United States borders. So when we think about choosing these policies and pursuing these goals, we need to remember that it’s a global phenomenon and our actions do influence the actions of other governments around the world. And we’ve actually been able to see that in the data.

 

James Lawler: (06:25)

I wonder if you could describe what is the social cost of carbon, how is this cost used and how do you even come to this number?

 

Tamma Carleton: (06:33)

My mentor and coauthor Michael Greenstone likes to say that the social cost of carbon is the most important number you’ve never heard of, but the social cost of carbon in a pure definition is an attempt to monetize all of the social and economic harms that occur from every ton of emissions that we release into the atmosphere. So every time we drive our cars, we ramp up production in a manufacturing facility. We turn on our lights more, and that requires more emissions that increase in emissions into the atmosphere will lead to a small change in our global climate over hundreds of years into the future. And the social cost of carbon is our attempt to monetize all of the many damages that that additional amount of warming will cause.

 

James Lawler: (07:17)

And that’s a global dollar value. So we’re talking about costs, not just to Americans, but broadly, you know, to human felt costs.

 

Tamma Carleton: (07:27)

As an economist. I would say, yes, the definition of a social cost of carbon is inherently global in nature because carbon emissions are a global pollutant. It is really important to note that under the Trump Administration, the social cost of carbon existed and was used in policy. But one of the very important levers that that administration pulled was to change the social cost of carbon to domestic only as opposed to global damages. 

 

James Lawler: (07:55)

How does this actually get used? You know, when, and first, what is actually, what is this number? How many dollars are we talking, and how is this instrument used in policymaking?

 

Tamma Carleton: (08:04)

It’s a very difficult number to get a wrangle on. And we should think about it as a range of estimates that we think are plausible, given the many uncertainties in calculating that number. I don’t think I’ll sit here and tell you what I think the true number or true ranges, because it gets really important that under the next administration, over the next course of a year, we’re going to see the updating of the official number that is going to bring in best available science. And I’m excited to see where that number lands, but that number in 2020 is about $52 per ton. There’s increasing evidence that the number will likely rise as we update it under the Biden Administration.

 

James Lawler: (08:38)

What were the factors that determine that $52 per ton of CO2? And then what factors are missing in your estimation?

 

Tamma Carleton: (08:45)

We know that it is expensive to lower emissions. We’re going to have to ask car manufacturers to change their factories so that they can produce more fuel efficient cars. For example, we know that’s going to cost money, right? And we need to be able to measure how costly that is against all the benefits that society will reap by mitigating future climate change by lowering the amount of climate change we face. And so the social cost of carbon is really powerful because it turns those benefits into dollars, so that policy makers can sit there at the table and say, here are the dollar value of the benefits we realized by lowering our missions, and we can put that right next to the dollar value of the cost to lower those emissions in a given sector, across the economy for a given particular policy, we need to be able to weigh the climate problem against all these other pressing challenges that we have. And so this is what allows policymakers to do that and to choose policies where it looks like, on balance, this is better for the American people than not doing it.

 

James Lawler: (09:43)

Let’s hit what we glossed over a moment ago, which was getting down to how is this number computed.

 

Tamma Carleton: (09:50)

In 2009, 2010, the Obama Administration formed what was called an inter-agency group, brought people together from a variety of different agencies across the US government to build a framework to calculate what the social class department is. At the time, there were three sort of leading models in the scientific literature that enabled the government to do that. They’re called integrated assessment models because they integrate a model of the economy with a model of the climate. Ultimately, you need both of those things to answer this question, they brought three models together and they built that number currently is about $52 per ton with a variety of important scientific decisions, but really making a great attempt to reflect the best available science at the time. Since that point, we haven’t gone back to the drawing board to ensure that the official framework we have for the SCC in the federal government reflects scientific advances. This is over a decade of a scientific advance that from my perspective has been really, really rapid.

 

Tamma Carleton: (10:48)

And we haven’t had a way to bring that science back into the social cost of carbon. As I mentioned, under the Trump Administration, a couple of key levers were pulled that there really is no scientific consensus behind choosing to pull those levers that brought the social cost of carbon down to a range between $1 and $7. As we mentioned, one of those lovers was only counting damages when the United States and the other lever is what’s called the discount rate. And the discount rate is an incredibly important parameter in the social cost of carbon calculation. And by changing that the Trump Administration dramatically lowered the social cost of carbon.

 

James Lawler: (11:24)

So the discount rate is how much we value or discount the future in our calculation of costs.

 

Tamma Carleton: (11:29)

As we’ve been talking about, every time we emit a ton of carbon, the impact on the global climate takes hundreds of years to fully materialize. So that means we need to be thinking about how we can monetize impacts that happen to my children and my grandchildren. When I’m counting the value today, that’s a very difficult problem. It’s ethically challenging, philosophically challenging. One of the key most objective ways to think about why this number should be there, why we should even think about discounting the future relative to the present is that we know… we sort of have intuition for the idea that a hundred dollars is worth a whole lot more to a poor person than to a rich person. When we think about the future, we know that on average GDP is growing around the world. People are likely to be richer in the future than they are today.

 

Tamma Carleton: (12:15)

And so when they realize a hundred dollars of damage from climate change, it will matter less to them than it will today because they’re likely to be richer. Even putting ethics and philosophy aside about how much I care about my future grandchildren relative to myself, even if we try to set that aside, there’s still an argument for discounting the future purely based on the idea that, on average, populations are likely to be richer. So that leaves us where? Where are we today? We have a new administration, a really exciting executive order calling for a scientific updating of this number. And I think that’s really important given the amount of science that’s happened since 2009, 2010.

 

James Lawler: (12:50)

How does this calculation deal with tail risk events or multi-link causal chains where the probability of progression from one causal chain to the next is not well understood. So for example, you can imagine large migrations causing political instability, which causes economies to tank for some reason, because of war or other reasons, which would have significant economic costs that would seem to be very hard to predict. So how does the social cost of carbon calculation take these kinds of phenomena into account?

 

Tamma Carleton: (13:28)

I’m going to answer your question by thinking about sort of the best version of the social cost of carbon that I hope will manifest over the course of the next year as the government updates it. So, this is a reflection of where science is wrestling right now. As you point out, this is hard, right? So we could throw up our hands and walk away and say, this is too difficult. But I think where that leaves us, as we just talked about, is either choosing a number of zero or choosing a number of infinity. And we know that’s just not right. It’s somewhere in the middle. And so my sort of philosophy of doing this work is that we’ve got to do our best to get a quantitative handle on what this number is. You’re absolutely right that it is difficult. And so that means doing our best to try to capture all of those links that you discussed, but also being very careful with representations of uncertainty.

 

Tamma Carleton: (14:16)

My approach, and I think increasingly the field is moving in this direction, is to leverage historical data to understand how the climate has shaped societies and economies in the past. And to use that evidence to inform the future. We know that is imperfect. There are likely to be things that happen under 4 degrees C of warming that we cannot see in historical data, but that philosophy has been understanding actual observed, realized life in history and economic output, as better than guessing. And so we are using our best available proxies for these events, these relationships in the past to try to make predictions in the future that are quantitative, but that also fully represent that uncertainty. We’ve got a really rich set of plausible scenarios of what the world might look like under different amounts of warming from climate science. And so we want to make sure to pair that full set of possible futures with uncertainty about these links between social outcomes and a changing climate.

 

Tamma Carleton: (15:15)

We absolutely have the data and the climate models to think about really the tail end of possible magnitudes of warming. And we do have climate models that represent what the world might look like if we’re actually far more sensitive to CO2 emissions than we thought. And so we really are able to generate estimates that capture that type of uncertainty, particularly on the climate model side, but also on the economic side. I do think a really important area of future work is going to be these sort of larger scale events that have not occurred in modern history, where we have the data to link them to social outcomes.

 

James Lawler: (15:49)

One more question on the social cost of carbon before we touch on some of the other work that you’ve done. Can you describe what this calculation looks like? I’m having trouble even just imagining what that Excel spreadsheet looks like? I mean, I know it’s not that…

 

Tamma Carleton: (16:04)

Definitely not an Excel spreadsheet, but it did start there. So some of the earlier models really were because, you’re right, it’s really hard to, to pull these pieces together. So the earlier models that, again, were very important for science and for policy did exist on an Excel spreadsheet just because you’re trying to pull multiple pieces together and we didn’t necessarily have evidence on all the complexities. So, now it definitely looks a lot different with a lot of cloud computing and servers in multiple places. At least, the type of work that I do, and that I’m hoping will continue to inform the social cost of carbon, which is really data-driven. It really does begin, like you’re saying, with collection of historical data on an outcome of interest. So for example, I recently released a paper on the mortality impacts of climate change that involves a big data collection effort to, to collect as much publicly available health records as we can across different regions of the world at high resolution. Our data collection efforts really focused on making sure that we’re able to capture to the extent possible polar locations, hotter locations, colder locations, so that we can really understand how a given amount of warming may have a differential effect on different populations.

 

Katherine Gorman: (17:19)

Tamma Carleton of UC Santa Barbara. So, James, it sounds like the social cost of carbon is actually the number that we need to pay attention to. But honestly, before we talked to Tamma, I had never heard of it. Do I just have my head in the sand or is this not getting as much play in the media as it needs for how big of a part of the conversation it has to be?

 

James Lawler: (17:41)

You know, the reason maybe it hasn’t gotten the attention it deserves is because it’s a very complicated concept to wrap your head around. And yet we have to do it. We have to have some way to determine from a policy perspective the value to society of making these changes, you know, they use economic models to develop policy and these models are saying, for example, the demand for gasoline is based on the price and vice versa. So what is that price of gasoline? Is what you pay at the pump the real price? No, it’s way too cheap because it doesn’t take into account the long-term cost of the emissions emitted by that gas. You know, the true cost of using gasoline should include the costs of the warming of the planet and all of the downstream effects of that.

 

Katherine Gorman: (18:23)

Well, that is it for this episode of the podcast. And you can head over to climatenow.com to check out other interviews, watch our videos and sign up for our newsletter. And if you want to get in touch with us, email us at contact@climatenow.com to tell us about how Tamma Carleton makes you feel better about the world, or you can tweet at us @weareclimatenow. Join us for our next conversation.

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