The Social Cost of Carbon

Beau Garrett

2021 was a year of fierce climate conversations. From the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report in August to COP26 in Glasgow in November, the year culminated in radical news about humanity’s progress to fight climate change—but radical action hasn’t been agreed upon. While climate activists and indigenous groups remain committed to showing the human cost of climate change, this conversation often goes underrepresented. As we reflect on the year past, the Social Cost of Carbon (SCC) becomes a helpful metric to understand the work that remains. Let’s take a look at the past, present, and future impacts of climate change, and what businesses and individuals can do right now to accelerate action.

Where Do Things Stand with Climate Change?

In August, the IPCC Report established the global scientific consensus that “it is unequivocal that human influence has warmed the atmosphere, ocean and land” and that “human-induced climate change is already affecting many weather and climate extremes in every region across the globe.” This will continue to have severe consequences for society such as the spread of disease, decreased food security, and coastal destruction.

What is the Effect of Climate Change on Society?

The UN Office for Disaster Risk Reduction (UNDRR) and World Meteorological Organization (WMO) recently reported that from 1970-2019 there were over two million deaths and $3.64 trillion in losses attributed to natural disasters, with over 91% of the deaths occurring in developing countries. The economic cost of natural hazards has skyrocketed to $383 million per day globally, with more frequent and intense tropical storms being the leading cause of economic damages. The US accounts for 38% of global economic losses caused by weather, climate, and water hazards.

Over 200 medical journals have labeled climate change as the greatest threat to global public health, and have urged governments to give climate change the same level of concern and funding that the COVID-19 pandemic has received. Unfortunately, disadvantaged groups of people facing discrimination based on gender, age, race, class, caste, indigeneity and disability are less likely to be able to cope with and recover from these damages. For these groups, lower quality of housing increases exposure to climate hazards such as flooding, drought, heat waves, water scarcity and water-borne pathogens, thereby increasing susceptibility to damage caused by climate hazards through the loss of income or food price increases. Shockingly, one-third of the global population is projected to experience temperatures that are currently only found in the Sahara.
These risks to human life highlight the need to increase adaptive capacity where it is low and help poorer communities prepare for the climate migration that is expected to take place during this century as a result of compounding calamities. This begins with defining a measure through which the global community can measure the cost of climate change: the Social Cost of Carbon (SCC).

What is the Social Cost of Carbon?

The Social Cost of Carbon (SCC) is one way to account for negative impacts on society. SCC is a metric designed to quantify and monetize climate damages, representing the net economic cost of carbon dioxide (or other greenhouse gases such as methane or nitrous oxide) emissions in a given year. It can and should be used to evaluate policies and guide decisions that affect greenhouse gas emissions.

Many major multinational companies, including Engie, Microsoft, and Nisaan already use internal measures much like the social cost of carbon to help make the business case for low-carbon investments. Yet while some countries and companies have put a price on carbon emissions through emission trading systems, emission reduction funds, and carbon taxes, the damages or “externalities” from emitting greenhouse gases are largely not reflected in the price of goods and services.

SCC is calculated by combining physical, economic, and social data from Integrated Assessment Models (IAMs). These models translate carbon dioxide emissions into changes in atmospheric greenhouse concentrations, atmospheric concentrations into changes in temperature, and temperature changes into economic damages. The IAMs used by the US federal government’s Interagency Working Group on the Social Cost of Greenhouse Gases (IWG) are DICE, FUND and PAGE. SCC estimates vary widely due to different assumptions about GDP growth, future emissions, climate responses and associated economic impacts, and discounting methods (how we value future damages), as seen in the figure below.
SCC Carbon Figure
Incremental damages for each tonne of CO2 in each year to 2300, measured in 2005 dollars. The keys show how each model breaks down benefits and damages by type and region [OECD = Organisation for Economic Co-operation and Development; ROW = Rest of World]. Source: Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon

Ultimately, the lack of agreement on a precise figure for SCC highlights the need for governments and businesses to mitigate the risks of global warming by at least putting a price on greenhouse gas emissions as a form of insurance. Inaction essentially values the SCC at zero. You can view IWG’s current SCC estimates in 5-year increments in the table below. While “central” SCC estimates are the most endorsed for US policymaking, they should be considered as a lower bound, given the levels of uncertainty and considering damages that are left out of existing IAMs.
Social Cost of Carbon Chart
Social Cost of CO2 (in 2020 dollars per metric ton of CO2) Source: costofcarbon.org

Global SCC estimates, which sum the country-level social costs of carbon, vary from $108-1,459 USD/tCO2, based on different projections of economic growth, emissions and associated damages, and discount rates.

What Can We Do to Prevent Global Warming Right Now?

While CO2 is responsible for half of the world’s current warming, the other half comes from potent short-lived climate pollutants (SLCPs), such as methane and fluorinated gases that are used as refrigerants. SLCPs are expected to contribute an additional 0.6°C of global warming by 2050 unless there is widespread action to reduce them. Reducing short-lived climate pollutants gives us our best chance to rapidly reduce global temperature rise and reduce the associated economic, agricultural, and health-related risks.

While countries and governments are working on voluntary commitments to reduce emissions, there are many actions that individuals can take to make a significant impact collectively. Reducing car and air travel, switching to renewable energy, reducing consumption and waste, and supporting carbon neutral businesses are all great ways to lower our carbon footprints. However, these actions require time, money, or lifestyle changes that may be difficult.

One powerful way to reduce your impact today is to purchase carbon offsets, which fund projects that remove carbon from the atmosphere or prevent potent greenhouse gases from leaking into the atmosphere by destroying them. Tradewater offers a solution that permanently destroys greenhouse gases, some of which are over 10,000 times more potent than CO2. Tradewater’s work is especially urgent, as the international treaty that banned the CFC and HCFC refrigerants that we collect and destroy did not allocate funding to clean up these gases. Remaining quantities of chlorofluorocarbons are estimated to amount to nine billion metric tons of CO2 equivalent, which is greater than the annual emissions of the United States. Giving Green, which researches evidence-based climate change solutions, has highlighted Tradewater offsets as “among the most credible on the market.”

Tradewater carbon offsets are very economical compared to Social Cost of Carbon estimates of economic damages that would result from the release of refrigerant gases to the atmosphere. An investment in Tradewater carbon offsets not only represents an actual reduction in emissions, but it also has a real economic impact by supporting the individuals and businesses from whom we buy refrigerant. Tradewater’s projects have resulted in over $32 million invested in communities to date and have supported the creation of new jobs in the US and internationally.

Check out Tradewater’s carbon calculator which allows you to quickly offset the climate impact of your household, as well as Tradewater’s Carbon Neutral Collective which helps businesses easily offset the climate impacts of business operations and achieve carbon neutrality claims.

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Permanence

Emission reductions are considered permanent if they are not reversible. In some projects, such as forestry or soil preservation, carbon offset credits are issued based upon the volume of CO2 that will be sequestered over future decades—but human actions and natural processes such as forest fires, disease, and soil tillage can disrupt those projects. When that happens, the emission reductions claimed by the project are reversed.

The destruction of halocarbon does not carry this risk. All destruction activities in Tradewater’s projects are conducted pursuant to the Montreal Protocol , which requires “a destruction process” that “results in the permanent transformation, or decomposition of all or a significant portion of such substances.” Specifically, the destruction facilities Tradewater uses must meet or exceed the recommendations of the UN Technology & Economic Assessment Panel , which approves certain technologies to destroy halocarbons, including the requirement that the technology achieve a 99.99% or higher “destruction and removal efficiency.” Simply put, this means that Tradewater’s technologies ensure that over 99.99% of the chemicals are permanently destroyed. During the destruction process, a continuous emission monitoring system is used to ensure full destruction of the ODS collected.

Accuracy

Some carbon offset projects necessarily rely on estimations or assumptions when calculating the emission reductions from project activities. Forestry projects, where developers make assumptions about the carbon that will be sequestered over future decades if trees are conserved, are a perfect example. Such projects sometimes result in an overestimation of the environmental benefit of the project.

Tradewater’s halocarbon projects avoid the issue of overestimation by consistently conducting extremely precise testing and measurement of the amount of refrigerant destroyed in each project.

  • Every container of ODS that Tradewater destroys is weighed by a third-party using regularly calibrated scales. The ODS is then sampled by a third-party and analyzed by an accredited refrigerant laboratory to determine its species and purity. These two steps combine to ensure that credits are issued only for the precise volume and type of refrigerant destroyed.
  • The destruction facilities that Tradewater uses continuously monitor the incineration process during destruction events to ensure that over 99.99% of the ODS is destroyed. This monitoring is mandated by regulatory protocols and is part of the verification process to which projects are subjected.
  • Tradewater accounts for the project emissions created during the collection, transport, and destruction of ODS, and the number of offsets issued is reduced by a corresponding amount. The protocols that we use also build in other reductions to account for substitute chemicals that will be used to replace the destroyed refrigerants. Tradewater publishes this information in the documentation for all its ODS destruction projects. These documents outline how the material was obtained, the project emissions calculations, the test results, and the amount and type of ODS chemicals destroyed, among other information.

    • Additionality

    It is a basic requirement of all carbon offset projects that the underlying project activities are additional. “Additional” means that the projects would not happen in the absence of a carbon market. Tradewater’s halocarbon projects simply would not happen – and the gases would be left to escape into the atmosphere – without the sale of the resulting carbon offset credits. This is because there is no mandate to collect and destroy these gases. It is still permissible to buy, sell, and use halocarbons that were produced before the ban. There are other reasons halocarbon destruction projects are additional:

    • There are no incentives or financial mechanisms to encourage halocarbon destruction. According to the International Energy Agency and United Nations Environment Program, “there is rarely funding nor incentive” to recover and destroy ozone depleting substances in storage tanks and discarded equipment. And collecting, transporting, and destroying halocarbons is time-intensive and expensive. The burden to collect and destroy these gases therefore remains prohibitive outside of carbon offset markets—meaning that if organizations like Tradewater do not do this work, nobody else will.
    • Countries are not focused on the need to collect and destroy halocarbons. The Montreal Protocol has been celebrated as a success because of its production ban. This success, however, ignores the legacy gases produced before the ban and is a blind spot for government regulators. In the U.S., for example, the Environmental Protection Agency (EPA) developed a Vintaging Model in the 1990s to estimate the quantify of ozone depleting substances left in circulation. Based on the inputs and assumptions put into the model, the EPA predicted that no CFCs would be available for recovery beyond 2020 in the United States. But this prediction did not prove accurate. Tradewater has collected and destroyed more than 1.5 million pounds of CFCs globally in recent years and continues to identify thousands of pounds per week.
    • International carbon accounting standards do not require corporations to measure or track emissions tied to halocarbons, and refrigerants are specifically excluded from Science Based Targets initiative (SBTi) commitments. These commitments derive from emissions reporting under the GHG Protocol, which requires companies to report on emissions only from new generation refrigerants, such as hydrofluorocarbons (HFCs), but does not establish any obligation to report inventories or emissions of refrigerants still in use, such as CFCs and HCFCs. All these factors combine to make Tradewater’s carbon offset projects highly additional. As Giving Green, an initiative of IDinsight, concluded: “Tradewater would not exist without the offset market, so this element of additionality is clearly achieved.” The case for additionality is not so clear for some other project types, such as forestry and landfill gas carbon projects. For example, some forests are already being conserved for their beauty, or for use as parks, and generate carbon offset credits only because those conservation efforts do not yet have full formal protection in place to avoid deforestation in the future. Similarly, methane from landfills can be used to make electricity or captured as compressed natural gas, thereby creating additional revenue streams to support the activities, beyond the sale of carbon credits.