There are several different ways of valuing Carbon
- The cost of implementing a mitigation practice that negates a ton CO2e
- The cost of damages to society as a result emitting a ton of CO2 and contributing to climate change
- Market-based mechanisms to internalize the mitigation into operational activities (such as the cap-and-trade program under RGGI
The cost of mitigating a ton of CO2e
Costs for implementing a practice that mitigates a ton of CO2e are generally derived by estimates from Marginal Abatement Cost (MAC) curves constructed from the available information in the literature. A marginal abatement cost curve represents the monetary cost of achieving one additional ton of sequestered GHG or avoided GHG emissions and indicates the total quantity of net GHG reductions that can be achieved at different price points such as $10, $50 and $100 per metric ton CO2e. It is a curve because there is usually a range of costs for implementing the same practice in different situations such as different farms. In this report, many such MAC estimates are from Fargione et al. (2018), which are national estimates down-scaled to the State level and are available online: https://nature4climate.org/u-s-carbon-mapper/.
The cost of damages from emitting a ton of CO2e
The Social Cost of Carbon (SCC) “is a measure, in dollars of the long-term damage done by a ton of carbon dioxide emission in a given year. … [It] is meant to be a comprehensive estimate of climate change damages and includes changes in net agricultural productivity, human health, property damages from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning (US EPA Interagency Working Group (IWG) 2016 from their discontinued web page). This is a widely sited and used report with some really great information for those that wish to learn more about the larger concepts involved: https://www.epa.gov/sites/production/files/2016-12/documents/sc_co2_tsd_august_2016.pdf
There is a very wide range of estimates for the social cost of carbon, and more recent literature that accounts for more factors finds higher values (for example Moore et al. 2015). The estimated price of $100 per ton of CO2 is required to keep the 100-year average temperature from warming more than 2.5°C, and an even higher cost would be required to meet the Paris agreement goal of less than 2.0°C. Therefore, spending up to $100 per ton can be considered cost-effective for climate benefits alone (e.g. NAS 2017, Hsiang et al. 2017). Estimates can also be made of the social cost of methane and of nitrous oxide. However, these estimates are not as well developed as those for CO2. Therefore we converted methane and nitrous oxide by their global warming potential (GWP) to CO2e and frame estimates relative to the $100 per metric CO2e.
To learn more about the current plans in NYS (July 2020), watch this 25 minute ppt presentation by Jason Panditch of NYS DEC. https://meetny.webex.com/recordingservice/sites/meetny/recording/play/c0c96cfbcb7a4464955b1825070e2057
Discount Rates: New York will have to consider its own definition of ‘affordability’ for GHG mitigation practices across different GHG gases, sectors, and degrees of permanence and verifiability, etc. And that ‘affordability’ needs to be measured against current generations and future generations. In the IWG document, above, they apply a “discount rate”. This discount rate is very important as it moves the weight of who pays to current or future generations. A lower discount rate costs more to current citizens, but it values future benefits. A higher discount rate costs less now, and assume future generations are wealthier and more able to pay for increased damages in the future. Given the unknowns about how climate change will impact future economies, it is hard to estimate if future generations will be wealthier. Additionally, as climate change is global, it is also unclear how the costs of these damages will be distributed across the global citizenry. To Note, the NYS CLCPA will consider a 0% -5% discount rates when thinking about a damages based approach to valuing carbon.
Social cost of methane? Social cost of nitrous oxide?
Just as there are multiple impacts from CO2, CH4 and N2O, there are multiple co-benefits from the proposed BMPs such as improved air quality, soil quality, and water quality. These activities have financial benefits that are often difficult to quantify. Just as we should aspire to account for the total costs of CO2, CH4 and N2O, we should also aspire to account for the total benefits of implementing a practice (not just the GHG benefits). While we can convert methane and nitrous oxide emission to CO2equivalents, NYS might consider valuing the costs of methane and nitrous oxide as separate from the cost of carbon dioxide. Worth following.
As NYS develops its own ‘social cost of carbon (or methane or nitrogen)’ and the financial benefits of GHG-sensitive BMPs on working lands, NYS will also need to decide what proportion of available funds will be spent on implementing practices versus verifying and ensuring practices. Does NYS want to allocate spending to focus on improved verification, or to implement directionally beneficial practices that are less verifiable, but provide other benefits? Nearly all policies, programs, and practices cost money and if the SCC is $100, what percentage of that amount should be spent on drafting and implementing policies, educating and training, implementing and recording a practice on farm, verifying, ensuring permanence, and registering mitigation for accounting? As a project moves away from easily verifiable and permanent to directionally beneficial and reversible the costs of verification go up, reducing money available to implement new practices.
