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Forbes.com: Economists Urge Honest Accounting of Carbon’s True Costs

With all eyes riveted on the debt talks and efforts to avert an economy-busting government default, little attention is being paid to another debt that is similarly ballooning out of control and threatening to spur its own economic chaos. The carbon debt.
by Mindy S. LubberForbes Sustainable Capitalism Blog Posted on Jul 15, 2011

With all eyes riveted on the debt talks and efforts to avert an economy-busting government default, little attention is being paid to another debt that is similarly ballooning out of control and threatening to spur its own economic chaos.

The carbon debt.  Those pesky greenhouse gas emissions that we spew to power our businesses, drive our cars and heat and cool our homes are accumulating in the atmosphere like an unpaid bill with compounding interest.

Economists now say that the bill for all that unchecked carbon pollution is a lot bigger than previously thought—and that the longer we wait to pay it, the more it’s going to cost us.

A new peer-reviewed report released this week by the Economics and Equity for the Environment (E3) network found that each ton of carbon dioxide emitted in the atmosphere results in as much as $893 in economic damages, far greater than the government’s current estimate of $21 per ton.

This figure, known as the “social cost of carbon,” is used by federal agencies when weighing the costs and benefits of carbon-reducing regulations, such as appliance efficiency standards or fuel economy standards for cars and trucks.   It’s an estimate of the monetary damages caused by higher global temperatures, such as extreme weather events, rising sea levels, agricultural losses and wildfires.

The government’s substantially lower social cost of carbon—which E3 calls “fundamentally flawed” and a “gross underestimate of the potential impacts of climate change”—means that it is much harder to justify more stringent regulations to limit carbon pollution.

E3’s new report further concludes that, “it’s costing us more to do nothing about climate change than it would to adopt mitigation measures.”

“Investing in reducing our emissions is clearly the prudent option,” says Frank Ackerman, an economist with the Stockholm Environment Institute and a report author. “It’s the difference between servicing your car, or waiting for it to break down on the highway.”

A second report released the same day by the World Resources and Environmental Law institutes similarly agrees that the government’s model for estimating a social cost of carbon oversimplifies assumptions about climate change and discounts the costs of future mitigations, resulting in an underestimate of true costs.

But look no further than recent headlines for real world proof that government economists may be low-balling the costs of climate change.

Earlier this week The New York Times reported that unprecedented drought and heat across 14 states from Florida to Arizona is creating huge agricultural losses expected to exceed $3 billion in Texas alone and exacerbating long-standing water feuds between southern states.

La Nina may be the underlying cause of the drought in the South, but rising temperatures from global warming make that drought more severe.  Moreover, extreme drought and heat are precisely the impacts scientists tell us we can expect to see more of in the U.S. Southwest in a warming world.

Meanwhile, insurers have already declared 2011 a year for the catastrophe record books, with losses from thunderstorms and twisters topping a record-setting $23.6 billion from just January to June.

Peter Hoppe, head of Munich Re’s Geo Risks Research, has no qualms about associating these record losses with climate change. Hoppe says that even when the role of rising population in storm paths is removed from the accelerating trend in losses, climate change emerges as a clear factor in the increased losses.

Scientists, and now economists, are telling us that we are long past due for a more honest accounting of the true costs of carbon dioxide, which is being emitted into the atmosphere largely at zero cost.  Our accounting mistake is wreaking ecological and economic damage across the U.S. and the world.

“We are literally rewriting the economic and financial history of disasters on a global scale,” Robert Hartwig, chief economist and president of the Insurance Information Institute, told a ClimateWire reporter.

Beyond an upward revision of the U.S. government’s social cost of carbon—which will more accurately capture the benefits of emissions-cutting measures like tighter fuel economy standards—we must eventually move to an economy wide price on carbon to spur innovation in clean technologies.

Just as we now face painful choices on the bill come due from deficit spending, we can expect painful choices the longer we delay reconciling the bill for our carbon debt.

Read the post at Forbes Sustainable Capitalism Blog

Meet the Expert

Mindy S. Lubber JD, MBA

Mindy S. Lubber is the president of Ceres and a founding board member of the organization. She also directs Ceres’ Investor Network on Climate Risk (INCR), a group of 100 institutional investors managing nearly $10 trillion in assets focused on the business risks and opportunities of climate change. Mindy regularly speaks about corporate and investor sustainability issues to high-level leaders at the New York Stock Exchange, United Nations, World Economic Forum, Clinton Global Initiative, American Accounting Association, American Bar Association and more than 100 Fortune 500 firms. She has led negotiating teams of investors, NGOs and Fortune 500 company CEOs who have taken far-reaching positions on corporate practices to minimize carbon emissions, water use and other environmental impacts. She has briefed powerful corporate boards, from Nike to American Electric Power, on how climate change affects shareholder value.

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