What is the “social cost” of emitting a tonne of CO₂?

The “social cost” of CO₂ emissions: analysis and implications

Business activities generate external costs. External environmental costs represent costs associated with the effects of the company's activities on the environment and health, but which are not included in the cost of products or services. These costs are borne, directly or indirectly, by the entire community. This is the case, for example, of costs linked to the impact of acid rain on buildings or lakes, resulting from the emission of sulfur dioxide (SO2), or to the impact of climate change due to use of fossil fuels. Most business activities affect the environment, either by using natural resources as inputs or by using the environment as a receiving medium for the pollutants generated. The costs of these uses of the environment are called "externalities" because they are marginal costs of economic activity and these marginal costs are never included in the prices paid by businesses or consumers, but which otherwise assume them via the State when it must remedy the situation. When such externalities are not included in prices, it distorts the market by encouraging activities that are costly to the community when the private benefits are substantial. Since 2001, INNOVAGRO consultants have used the precise elements of a very comprehensive British study ^[1] to quantify the externalities of GHG emissions due to their negative impacts on climate change, health, parasitic diseases, the increase in the level of the seas, biodiversity, water availability, as well as the occurrence of storms, floods and other climatic accidents. The cost of the environmental impacts (in the broad sense) of emitting a TeqCO2 is thus established at CAN$235 (present value 2023^[2]) by INNOVAGRO consultants.

A recent American study ^[3] (published in September 2022) looked at the real social cost of emitting TeqCO₂.

The social cost of carbon dioxide (CS-CO₂>) measures the monetary value of the damage caused to society by an additional metric ton of CO₂ emissions and is a key metric for climate policy. Used by governments and other decision-makers in benefit-cost analyzes for more than a decade, CS-CO₂ estimates draw on climate science, economics, demographics and other disciplines. However, a 2017 report by the US National Academies of Sciences, Engineering, and Medicine (NASEM) highlighted that current CS-CO₂ estimates no longer reflect the latest research. The report provided a series of recommendations to improve the scientific basis, transparency and uncertainty characterization of CS-CO₂ estimates. The study shows that improving probabilistic socio-economic projections, climate models, damage functions and discounting methods, which collectively reflect a theoretically consistent assessment of risk, significantly increases CS-CO₂ estimates. The revalued average CS-CO₂ estimate is US$185 per tonne of CO₂ (2020 US dollars)^[4] at a short-term risk-free discount rate of 2%, a value 3.6 times higher than the current US government value of US$51 per tCO₂. The estimates presented integrate the most recent scientific knowledge into all components of CS-CO₂ estimation in the new open-source Greenhouse Gas Impact Value Estimator (GIVE) model, so as to fully meet NASEM's short-term recommendations . Higher CS-CO₂ values, compared to estimates currently used in policy evaluation, significantly increase the estimated benefits of greenhouse gas mitigation and thus increase the expected net benefits of stricter climate policies.

Thermal releases from the Saint-Félicien cogeneration plant are thermal energy already produced and carbon neutral. In fact, this thermal energy is heat inevitably produced by the processes (fatal heat) by the use of a renewable fuel (forest biomass). The recovery of these thermal discharges makes it possible, on the one hand, to provide users with sustainable thermal energy at low cost, and, on the other hand, to avoid the use of fossil fuels such as natural gas (or propane or oil No. 2) which are not carbon neutral and whose combustion emissions (GHG) are harmful to the environment in the broad sense.

In order to present the fairest value of the cost of externalities caused by GHG emissions expressed in TeqCO₂, and, as an immediate corollary, recurring savings made for the benefit of the community on these externalities through the use of fuels and/or of carbon-neutral thermal energies, the value retained, in our work, of the social cost or externality cost of the emission of a TeqCO₂ is CAN$291 (2023 value).

[1] J.N. Pretty et al (1999) – « An assessment of the total external costs of UK agriculture » – Agricultural systems 65 (2), 113-136

[2] https://www.banqueducanada.ca/taux/renseignements-complementaires/feuille-de-calcul-de-linflation/

[3] Rennert, K., Errickson, F., Prest, B.C. et al. Comprehensive evidence implies a higher social cost of CO2. Nature (2022). https://doi.org/10.1038/s41586-022-05224-9

[4] En 2020, 185 US$ = 253 CAN$ → inflation canadienne 2020-2022 = +11,54% → 282 CAN$ (2022) → inflation canadienne 2022-2023 = +3,27% → 291 CAN$ (2023)

Details

All relevant studies carried out by INNOVAGRO consultants.