The Number That Could Shape The Future

On the 20th January Biden announced the recommencement of the Interagency Working Group (“IWG”), and tasked them with updating the estimate of the ‘social cost of carbon emissions’ (“SCC”), within 30 days with a full review to be produced by January 2022. The report is to be grounded in “the best available science” [1].

The SCC once described as the ‘most important number you have never heard of’ [2], tries to quantify the economic burden on present and future generations of emitting one tonne of CO2 into the atmosphere. A discount rate is used within the calculation which represents how much value is placed on the future, the lower the discount rate used the more the future is valued, while a high discount rate means that those alive today are considered more important than future populations.

At the end of the Obama administration, it stood at around USD 52 per tonne of CO2e, having risen from USD 21, (with the use of a 3 percent discount rate) however, this was cut by Trump to around USD 1-7 per tonne of CO2e, when used discount rates of both 3 and 7 percent. An SCC this low suggests that the benefits to society of emitting CO2 far outweigh the costs, thereby permitting big polluters to continue without abating their emissions.

Economists have suggested the IWG estimate could reflect a much greater emphasis on the way in which we value natural capital. They have also suggested a discount rate of 2 percent may be used, therefore predicting a rise to USD 125 per tonne of CO2e. Biden stated he wants the IWG to account for the full cost of pollution “including climate risk, environmental justice, and intergenerational equity.”

[ The number that could shape the future ]

Mark Carney in his first lecture in the 2020 Reith Lecture series made the pertinent point asking,

 “Why do financial markets rate Amazon as one of the world’s most valuable companies, but the value of the vast region of the Amazon appears on no ledger until it’s stripped of its foliage and converted into farmland?” 

[3]

The answer to this is obviously complex but a clear distribution is that produced capital is easier to value. Nature or natural capital is invisible, the water purification processes, the soil nutrient cycling and the work that one billion tonnes of phytoplankton do every day in the ocean is invisible. Our economies are embedded within Nature yet the work it does is not reflected in the balance books or in market prices [4]. So how do we value this? And who do we attribute the harm caused too? 

The much anticipated Dasgupta Review published on the 2 February 2021 reiterates Carney’s points stating that ‘Nature is a blind spot in economics that we ignore at our peril’ [4], along with stressing the importance of the transformation of our financial institutions to enhance Nature while decreasing financial flows into systems that degrade them. 

Biden’s focus on reestablishing the IWG might be the start to helping attribute blame as well as a refocusing of how to value Nature. Experts say that by revising the figure will mean the Biden administration will be applied to craft stricter environmental policies and aid with them getting back in line with their commitments under the Paris Agreement. It is also likely to help prompt other countries to consider the value they place on carbon emissions, and perhaps adopt the SCC metric within their policies. 

At a 

company

 level, this will provide them with an economic framework when addressing their 

carbon footprint

, when considering 

offsetting

 options if nature is valued more highly this will hopefully trigger nature-based solutions to have a much bigger seat at the table than they currently have. 

However, many questions still surround SCC such as how to place a monetary value on human life, bringing up moral philosophical question as well as socio-economic ones. Also as discussed above placing a value on natural capital is still incredibly complex, which much discussion about how best to calculate it. 

This is not a silver bullet to the

 climate crisis 

by any stretch but should be used within an integrated approach to sustainable development. It could, however, be a vital turning point, which could help shape policy, as well as helping reposition financial markets and the way in which we value things. 

And finally, recognising the true value of Nature to human society needs to be appreciated not just economically but socially as well. 

[1] Richard G. Newell and Maureen Cropper 2021;

www.resourcesmag.org/science-based-estimates-for-the-social-cost-of-carbon-will-underpin-sound-climate-policy

[2] Gernot Wargner, New York University

[3] Mark Carney, Reith Lecture Series 2020

[4] Dasgupta Review 2021