The right way to assess the worthiness of energy projects has nothing to do with counting jobs, Mr. Borenstein added. It involves doing cost-benefit analyses that include both the projects’ direct costs — the sort of thing that investors base decisions on — and their “externalities,” the costs and benefits to society such as air or water pollution or useful knowledge uncovered by research and development.
When fossil fuels are involved, a sophisticated cost-benefit analysis requires an additional calculation using what has become known as “the social cost of carbon”— an estimated number in dollars per ton of carbon dioxide that reflects the climate change consequences of a project’s emissions. This is an imprecise number, intended to take into account a deluge of woes, an array of constantly changing and sometimes unpredictable climate phenomena including rising temperatures and sea levels, intense droughts and floods, and hampered agricultural production. But the number, pegged by the Obama administration at $45 per ton in 2020, is a better approximation of climate change’s impact than zero, the default number if the calculation isn’t attempted.
Multiply $45 by the number of tons of a project’s expected carbon dioxide emissions and the result is its climate change cost, which should be included in its cost-benefit analysis. If that calculation were performed for all energy projects now, most existing coal-fired power would be considered uneconomical, while gas-fired power plants wouldn’t be significantly affected. Renewables would benefit.
On an individual level, the impact of the social cost of carbon might be modest: For instance, the average American car emits a ton of carbon dioxide every two to two and a half months, hiking the annual expense of driving a car by roughly $250.
But on a national scale, the quantities are enormous. Consider that in 2016 the United States emitted five billion tons of carbon dioxide, nearly a seventh of the global total of 36 billion tons. Adding the social cost of carbon to domestic fossil fuels’ other expenses would have driven up their cost by about $200 billion, enough to help hasten the economy’s conversion to renewable energy and reduce the depredations of climate change.
The idea of the social cost of carbon was discussed in scholarly literature for decades, but it didn’t become consequential until 2007, when the San Francisco-based Ninth Circuit Court of Appeals ruled that the National Highway Traffic Safety Administration had to take climate change impacts into account