This post was originally published on Gas2.
Most of us never heard the phrase “untaxed externality” until Elon Musk used it during a talk he gave at the Sorbonne last December in Paris. It is an arcane term that economists use. Essentially, it refers to a cost created by one person that has to be paid by another. Carbon dioxide is one such untaxed externality. It is a product of virtually all human activity that involves manufacturing or transportation. It is inherent in the use of fossil fuels and it is a primary cause of climate change.
Gernot Wagner, a research associate at Harvard’s School of Engineering and Applied Sciences and an expert on carbon economics, describes it this way. Every time someone flies across the country and back, they emit about one ton of carbon, which causes about $40 worth of “climate damages to the economy, ecosystems, human health, and the planet. All 300 million of us — all seven billion of us — then pay a fraction of a penny every time I get to take a round-trip to San Francisco. That’s the real problem: I benefit; the rest of society pays.”
The federal government calls the impact of carbon dioxide the “social cost of carbon,” or SCC. It has even put a price on it as a way of addressing climate change issues. Currently, that price is set at $36 per metric ton of carbon dioxide emitted into the atmosphere. That cost is slated to rise to $50 a metric ton in 2030 and $69 a metric ton in 2050. The EPA uses the social cost of carbon when it calculates the efficiency ratings of refrigerators. (Note that different researchers come to different costs, and several are far higher than the EPA’s costs. For example, between $55 and $266 per metric ton of carbon.)
A group of refrigerator manufacturers objected, calling it “arbitrary and capricious.” They challenged it in court — and lost. On Monday, the US Court of Appeals for the 7th Circuit sided with the government and rejected the argument of the manufacturers. It is of no small significance that the ruling was unanimous and the opinion was written by the Senior Judge Kenneth Ripple, who was appointed to the court by Ronald Reagan. Judge Ripple wrote in his opinion that approving the inclusion of social cost of carbon “is not a close call. We are convinced that DOE’s engineering analysis, including its use of an analytical model, was neither arbitrary nor capricious.”
The decision applies only to lower courts in the 7th Circuit, which covers the states of Illinois, Wisconsin, and Indiana. Other circuit courts are not bound by this decision. One of the principal functions of the US Supreme Court is to resolve conflicts between the 13 districts in the federal court system.
Anyone who thinks courts are not political hasn’t been paying attention. In February, the US Supreme Court temporarily blocked enforcement of the government’s Clean Power Plan intended to regulate emissions from coal-burning power plants. The vote was strictly along party lines, with all 5 conservative justices agreeing to the delay. Now the Court is divided evenly following the death of Antonin Scalia. Ultimately, the outcome will rest on who gets to appoint the next justice of the Supreme Court. Something to consider when you go to the polls in November.
David Doniger, director of the climate and clean air program at the Natural Resources Defense Council, says, “Fossil energy companies oppose pollution standards that would make them responsible for the harm they cause our health and our planet. They would like the public to think government health, safety, and environmental standards have only costs, no benefits. So they are seeking to block the social cost of carbon as a way to block considering benefits.”
Carbon carbon pollution threatens Americans’ health and safety, according to Doniger. Often, the impact of carbon pollution is not immediately obvious. “Just last week a former national security adviser to President George W. Bush acknowledged that climate change was creating refugees and terrorists,” said Doniger. “So the damage from ignoring climate change goes well beyond what we normally think of as ‘environmental’ issues; it’s a core national security issue.”
Many environmentalists, including the redoubtable Elon Musk, favor balancing the books when it comes to the harm caused by fossil fuels by adding a fee equivalent to the damage they cause. Opponents like to call this a “carbon tax,” knowing the word “tax” is loaded with political implications. Elon refers to the harm caused by carbon emissions as “the turd in the punch bowl.” Surely no one would object to imposing a financial penalty on anyone who befouls the punch, would they?
The decision by the 7th Circuit Court of Appeals is significant because it marks the first time a court in the US has judicially sanctioned the idea of putting a price on carbon. It may be a milestone on what turns out to be a long road, but in the words of an old Chinese proverb, “A journey of a thousand miles begins with but a single step.” We may look back a decade from now and identify this as a “tipping point” moment, the time when America finally began to take climate change seriously.
Instead of Senators who bring snowballs with them to work to prove climate change is a hoax, we may actually be represented by people who are not hostages to the fossil fuel industry; people who are committed to representing the American public rather than billionaires. Imagine if we had a government that was not for sale to the highest bidder?