Smoke billows from one of many chemical plants in the area Oct. 12, 2013. 'Cancer Alley' is one of the most polluted areas of the United States and lies along the once pristine Mississippi River that stretches some 80 miles from New Orleans to Baton Rouge, where a dense concentration of oil refineries, petrochemical plants, and other chemical industries reside alongside suburban homes.
Giles Clarke—Getty Images
October 20, 2022 5:44 PM EDT

In Monroe County, home to the Florida Keys, climate change disaster isn’t 50 or 100 years off—it’s here now. Sea level there rose about 4 inches from 2000 to 2017 and will push up another 6 to 13 inches by 2040, according to county projections.

Many homeowners will need to elevate their houses by at least 4 to 6 ft., at a minimum cost of $200,000, says Caroline Horn, who heads up an effort—the Keyswide Home Elevation Project—to educate them about what’s coming. The county also is launching an initiative to raise more than half its roads by up to 3 ft., at a price of $1.6 billion. “We have a lot of people leaving because they can’t afford to live here anymore,” Horn says.

America still mostly runs on fossil fuels. And that goes for most of the developed world too, with the exception of a few countries. (Iceland gets nearly 100% of its energy from renewable sources, mostly hydropower and geothermal. France and Sweden get more than half of their energy from non-fossil-fuel sources, though both rely heavily on nuclear power.)

One big reason for all that use of fossil fuels is that prices for them don’t reflect the costs that their emissions shift onto other people, like residents of the Keys. The United States government is 13 years into an effort to fix that by setting a “social cost of carbon,” which refers to a price per ton of emissions that it uses in calculating the costs and benefits of policies like how high to set mileage standards for cars or whether to issue oil and gas leases on public lands.

But the actual figure has swung wildly depending on who’s in control of the White House, and the Biden Administration’s interim number—set last January while it comes up with a permanent figure—faces threats in federal court. On July 19, the administration asked the U.S. Court of Appeals for the 5th Circuit to dismiss a lawsuit led by Louisiana and other Republican-led states. Meanwhile, the administration’s updated number is months overdue.

Paying a Price for Carbon’s Impacts on Society

Nearly all economists agree that the harm caused by pollution should show up in what we pay for gasoline and other fossil fuels. A 2007 study, for example, estimated that paying for the damages caused by driving would add as much as $2.10 to the cost of a gallon of gas.

Enter the social cost of carbon: a dollar value for each ton of it that’s released into the atmosphere to reflect the cost to society. A ton of airborne carbon is about what an average U.S. car emits in three months of driving. The figure is mainly used by the federal government in determining the costs and benefits of new pollution rules. (Since 1993 the government has been required to estimate whether the benefits of a new regulation justify its cost.)

At least four other countries also set a social cost of carbon. France and Canada use the same model that the U.S. does, calculating a price per ton to account for the harm caused. Germany and the United Kingdom set a price designed to cut emissions to a level that meets their national targets.

To come up with an actual figure, analysts use economic models to determine how much adding a ton of carbon to the atmosphere will increase global temperatures. Then they translate the temperature increase into a total dollar value of damages it causes in areas like agriculture and physical infrastructure. Crop insurance losses from global warming, for example, caused payments from the U.S. taxpayer-supported federal crop insurance program to increase $27 billion over the past three decades, according to a 2021 Stanford University study.

How the U.S. Is Calculating Its Social Cost of Carbon

But what comes out of those models depends on what goes in, so the number has bounced around depending on which party has the presidency. The Obama administration appointed the first working group to come up with an estimate, and in February 2010 it calculated a figure of about $43 a ton.

Included in that number was an assumption—based on emissions not being cognizant of borders—that emissions originating in the United States would impose costs on the rest of the world in areas like agricultural productivity, health, and property damage. The U.S. is the world’s 11th largest per-capita greenhouse gas emitter, according to 2019 World Bank data. Some of the world’s poorest countries with the lowest emissions, like Haiti and Yemen, will be hardest hit by climate change’s effects.

The Trump administration disbanded the working group in March 2017 and changed how the cost was calculated, mainly by only including carbon damage occurring inside U.S. borders. That cut the number to between $1 and $7, which in turn let it roll back Obama-era environmental rules.

President Biden revived the working group on his first day in office, and it temporarily reset the price to $51 while it worked on an updated figure (originally due to be released in January 2022).

The number is more important than ever after a Supreme Court ruling June 30, 2022, that curtailed the Environmental Protection Agency’s ability to set emissions caps for power plants. That had been a key driver in cutting emissions over the last decade, says Brian Prest, an economist and fellow at the Washington, D.C.-based nonprofit Resources for the Future. So the social cost of carbon gives the agency a metric for assessing the costs and benefits of new and existing tools it uses to replace what the court struck down, he says.

But the metric itself isn’t immune from court intervention: The lawsuit challenging how the Biden administration came up with its interim $51 number, filed in April 2021 by 10 states in a Louisiana federal court, is set for a hearing this December. It could still take the courts a while to issue a ruling, and the outcome could depend on which judges in the 5th Circuit hear the case, says Michael Gerrard, founder of the Sabin Center for Climate Change Law at Columbia Law School in New York City.

How This All Affects Corporate Action

Wherever the number ends up, there are reasons for businesses to pay attention to it, particularly companies with any connection to government. As of 2019, for example, New York State has been using its own social cost of carbon of $125 a ton in decisions like who gets a contract or grant, or whether to buy electric vehicles.

A growing number of large companies are already factoring an internal carbon price—essentially a private-sector version of the social cost of carbon—into their investment decisions. BP and Shell, for example, set an internal carbon price per ton of $40, and the Walt Disney Company uses $10.

They’re doing so because, especially in the energy industry, projects take a long time to come to fruition and can last decades once they start, says Mark Finley, a former BP senior economist. So while the U.S. has no carbon tax, if a company thinks one could be coming, it might want to factor a carbon price into its investment analysis right from the beginning, he says.

If Congress were ever to pass a carbon tax, it could use the social cost of carbon in setting the price. In turn, some researchers suggest the government could then use the revenues to compensate those hit hardest by climate change. Poor countries have called, without success, for exactly that in international climate-change negotiations. It remains to be seen whether others facing thousands in extra costs—like Monroe County’s homeowners—might ever benefit from a system to use carbon tax revenues to make them whole.

This article is part of a series on key topics in the climate crisis for time.com and CO2.com, a division of TIME that helps companies reduce their impact on the planet. For more information, go to co2.com

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