FEBRUARY 11, 2021
New York State’s Cost of Carbon Guidance Bodes Well for Solar Industry
The clean energy industry’s growth is largely determined by decisions made by policymakers and public utility commissioners. A single decision, such as a Renewable Portfolio Standard goal that commits to a certain percentage of energy on the grid coming from clean resources, can make or break the renewables industry in a state. In most cases, decisions about how quickly to deploy clean energy are made recognizing we pay a price for doing nothing about future emissions, but making no attempt to estimate the cost to society of those emissions. Thankfully, some decision-makers are using science-based estimates of the “social cost of carbon” in their accounting, which is supposed to reflect the true cost of health and property damages from keeping a grid powered by fossil fuels.
But those estimates have a glaring omission.
In 2020, the cost of climate disasters in the U.S. doubled to $95 billion. Every year, that cost is increasing, yet the social cost of carbon most widely used in policy decisions doesn’t include the cost of damages from large-scale, emissions-driven disasters, like California wildfires and Gulf Coast hurricanes.
Fixing the “social cost of carbon”
So, how do we get ahead of this problem instead of always getting stuck with the grim bill? One way is to make sure policymakers are using a social cost of carbon consistent with what science tells us is the full cost of emissions’ damages to society.
The social cost of carbon is difficult to quantify. The most sophisticated scientific methods model how emissions will warm the planet and integrate the results with models that forecast the economic damage of that global warming. These models have many sources of uncertainty, so there’s no universally accepted social cost of carbon value. The most commonly used values are the ones developed by the Federal Interagency Working Group on Social Cost of Greenhouse Gases (“IWG”). While the IWG work should be celebrated for its contributions to the fight against climate change, more progress is needed because the IWG’s underlying models do not directly account for damages caused by single, large-scale climate events. Despite other sources of uncertainty in the IWG’s estimates, there is little scientific debate whether emissions are contributing to large-scale catastrophic events and we know that those disasters are terribly costly. The exact social cost of climate disasters can and should be rigorously evaluated, and even after they have been, we’re unlikely to predict them exactly. But we know with enough certainty that those costs are not zero, so the social cost of carbon used by decision-makers should not assume so.
Last month, the New York State Department of Environmental Conservation (DEC) took a big step in the right direction. It finalized critical “value of carbon” guidance that recommends state agencies use a value for the social cost of carbon to make decisions. The New York DEC’s recommended social cost of carbon is groundbreaking because the DEC’s review of the newest and best-available climate research leads it to recommend a value higher than the most commonly used IWG value, in large part to better account for the social cost of climate disasters. The DEC social cost of carbon – with a “central value” of $125 per metric ton of carbon dioxide – is a 164% increase compared to the IWG central value of $53 per metric ton (in 2020 dollars), which the state has been using to approximate the environmental benefits that distributed solar provides. This is a sobering indicator that New York has been drastically underestimating environmental benefits of producing clean energy.
Now, it’s up to the state’s energy regulator – the Public Service Commission – to incorporate its sister agencies’ updated value of carbon into its policies. If properly implemented, this new cost of carbon would appropriately increase compensation for new clean resources, making them less reliant on state incentives that are still needed for these projects to be built today.
Towards better decision-making
A comprehensive social cost of carbon could be a powerful tool for state and federal agencies that are focused on maximizing the benefit of their decisions for society. It will enable them to put an appropriate price tag on competing policy options so that emissions-reducing approaches are more accurately rewarded and don’t perpetually lose to polluting approaches whose perilous environmental costs are often hidden or ignored.
Our hope is that good policy will be contagious. Just as California’s leadership in vehicle emissions standards has been adopted by many other states, New York’s leadership in using a more comprehensive social cost of carbon could have ripple effects throughout the country.
We applaud the DEC and the state of New York for issuing this forward-thinking guidance and are eager to see how the state uses this new tool to help drive more aggressive decarbonization.