Will President Trump's New Social Cost of Carbon Reverse Obama Era Policies?
What cost can we put on present-day carbon emissions for future generations?
That seems to be the critical question at play in this administration’s efforts to roll back regulations from the Obama era. The Trump administration increased the discount rate for calculating the social cost of carbon to 7% from 3% earlier this year. The discount rate increase has dramatically reduced the social cost of carbon from $51, a figure that was expected to be reached by 2020, to $1. Naturally, the drastic price reduction makes it easier for fossil fuel producers and distributors to sell products to the energy industry.
The social cost of carbon aims to calculate a dollar amount for economic harm that a tonne of carbon emissions in the present day causes to future generations. Calculating the figure is a complex exercise and requires inputs from multiple stakeholders. President George W. Bush’s Office of Management and Budget (OMB) advised a discount rate of between 3% and 7% for the statistic. After testing rates that varied between 3% and 7%, the Obama administration settled at the lower end of this estimate. Critics have charged that the 3% rate was used to “beef up” the previous administration’s numbers and push through a raft of climate change-related legislations.
Two years after President Obama took office, in 2010, the social cost of carbon was $20. Over the years, it has increased. A 2013 NRDC paper measuring the metric cost to the grid stated that the U.S. government had used the $33 figure for its calculations. At that price point, it was cheaper for electric utilities to opt for renewable energy, instead of building cost-intensive coal power plants. According to recent figures, renewable energy was responsible for 10% of the nation’s electricity needs. President Trump’s current initiatives are obviously intended to reverse renewable energy’s growing share of the market.
But his plan doesn’t seem to be working. The metric has is also becoming popular outside the United States. For example, Canada has adopted it for its own regulatory initiatives to measure the social cost of carbon.
States and utilities are also striking out on different path. In March, the Minnesota Public Utilities Commission voted to increase the carbon impact price to a range between $9.05 to $43.06 by 2020 earlier this year. That should further make the state, which is already big on wind energy, friendlier to renewable energy and help wean off subsidies to the sector. Some of that is already happening. In 2014, Geronimo Energy won a utility-scale project against natural gas companies by incorporating the social cost of carbon in its accounting. The result was Aurora Solar PV Power Project, the largest solar project within the state. Colorado has made similar moves and its Public Utilities Commission is using $43 per ton of CO2 as base for pollution cost estimates. The CEO of New York’s Independent Systems Operator (NYISO) testified before Congress earlier this year about incorporating penalties equivalent to the social cost of carbon for power generated polluting fees. He said the penalties collected “would be returned to customers in some equitable manner. Illinois uses similar estimates.