Social Cost of Carbon

What is the problem?

The release of carbon dioxide from human activities is causing global temperatures to rise. As a result, significant changes are occurring to the planet: rising sea levels; more frequent and intense extreme weather events; and changes in agricultural productivity & availability of fresh water as weather norms diverge from familiar patterns. Civilization was not built to accommodate these kind of rapidly shifting baselines.

What does Social Cost of Carbon (SCC) mean?

It’s the estimated cost now of the sum of economic damages caused in the foreseeable future, by each additional ton of carbon dioxide released into the atmosphere now.

It’s a little bit like the story of the Pied Piper. Humanity is relying on the good will and (seemingly) infinite tolerance of Mother Nature to the ecosystem debts we’ve accumulated (i.e. atmosphere, hydrosphere & biosphere damage). That debt will eventually come due. SCC is an attempt to pay down the debt using familiar, free market methods. Prices on dirty fuels will rise in order to better represent the full costs to society they’ve wrought and will bring. Higher prices, while objectionable in the near-term, motivate innovation and alternate, cheaper solutions. It’s a way to show Mother Nature we’re acting in good faith before she takes our children.

Why is SCC important?

It’s important because government agencies and corporations seeking to incorporate climate change considerations in regulations and/or purchasing decisions often rely on cost-benefit analyses. Those analyses balance the cost of: A) curbing emissions, with B) expected damage caused by those emissions. SCC estimates the total cost of future damage, in today’s dollars. A high SCC valuation is the financial equivalent of strong regulatory controls on emissions.

Does Pasadena Water and Power (PWP) use SCC?

Yes, but only when selling excess power to other utilities. For more information, see the footnote*.

What does Pasadena 100 want PWP to do?

Apply SCC to emissions coming from all retail electricity sales generated by fossil fuels after 2030 (starting at a value of $190/ton) and rising to $242/ton by 2045. Many other cities in California have committed to achieving 100% clean energy by 2030. (An example is Sacramento.) One way of motivating a transition to 100% clean energy is to justify the acquisition of renewable energy facilities by using a cost-benefit analysis. The analysis will show that renewable energy is far more affordable than fossil fuel energy, which is obliged to pay the SCC penalty.

Where does SCC come from?

It’s computed by the US Government and economic think-tanks.

For more information, see:
Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide, February 2021 https://perma.cc/5B4Q-3T5Q
Comprehensive Evidence Implies a Higher Social Cost of CO2, Nature, Sept 1, 2022 https://www.nature.com/articles/s41586-022-05224-9

* Since 2018 PWP has made a modest effort to constrain fossil fuel emissions by modeling SCC as a “dispatch-penalty” when selling excess power to other utilities. In 2021’s Integrated Resource Plan (IRP), PWP used an SCC equal to $152/ton CO2 (2020 value). That penalty predictably decreases PWP’s future revenue. Nevertheless (despite loss of sales), PWP’s anticipated customer rates for the 2020s decrease (i.e. comparing 2021’s IRP to 2018’s IRP). The decrease is partly due to lower renewable energy costs and partly due to faster acquisition of renewables forced by new State of California requirements.