SCC DIAGRAMThe cost of carbon taxes is often lamented in the media, however what we should actually be talking about is the rapidly escalating costs that are being imposed on us as a result of human fossil fuel consumption. The cost of fossil fuel itself does not account for the costs borne by society as a result of emitting carbon dioxide into the atmosphere. While certain costs of the climate crisis are difficult or impossible to nail down (for example, what is the cost to society of a person dying of air pollution or the extinction of species?), many other costs can and have been quantified. The concept of social cost of carbon aims to quantify these costs to better understand the full cost of burning fossil fuels. So what are these costs?

Public Health

The climate crisis is a major threat to public health (as I discussed in a previous blog) and is imposing many costs to our healthcare system. You can reference that blog for further details, but the main drivers of healthcare impacts are: increase in labour hours lost, increased frequency of disasters leading to acute loss of life/injuries as well as longer term mental health costs, increased cardiovascular disease associated with pollution and wildfire smoke, expanding range of disease spreading insects, malnutrition associated with reduced crop yields/higher food costs. The Lancet has recently published their latest report on the health impacts of the climate crisis.

All of these impacts stress our healthcare system and increase the cost to deliver health care to society. These public health costs are borne by society as a whole and are mere externalities for the entities that are generating the CO2 emissions.

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Fossil Fuel Vehicles Cause Climate Pollution and Cardiovascular Disease. Photo Credit: Floydian [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D
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Ticks that spread Lyme Disease are expanding their range within Canada. Photo by Scott Bauer.

Property Damage/Loss

It is projected that the climate crisis is leading to higher incidence of flood risk in North America. We have seen some evidence of this in New Brunswick, Toronto, and Canada overall. Flood damage is often not covered by insurance and damage cost may be borne by individuals, companies, or taxpayers in the case that governments compensate people for damages or pay to relocate communities.

Rising sea levels associated with the climate crisis are also expected to lead to loss of real estate value. Some estimates project the cost to the global economy of up to $14 trillion by the year 2100.

Unless a social cost of carbon is applied, these social costs are not borne by those burning the fossil fuels and emitting the CO2, but rather by society overall.

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Exile on Ontario St from Montreal, Canada [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)%5D

Agricultural Productivity Loss

The climate crisis is causing an average reduction of the food production capacity of the Earth. Reduction in supply leads to increased costs of food for individuals, businesses and governments. Once again, the costs of burning fossil fuels are being imposed on society rather than on the entity doing the burning.

Ecosystem Services

The natural environment supports human civilization in many ways: provisioning food and water, regulating climate and disease, supporting nutrient cycles and oxygen production, and providing recreational benefits. Some examples of ecosystem services include pollination of crops by bees, filtration of water through natural watersheds, natural predators reducing numbers of prey animals, carbon sequestration in plants, etc. Many of these ecosystem benefits are often taken for granted in economic analysis. In a heating world, some of these benefits are becoming more and more strained. A social cost of carbon analysis accounts for the decline in these ecosystem services.

Social Cost of Carbon

So what do all of these costs add up to? What cost are we imposing on society for every ton of CO2 we emit? There have been several studies that attempted to quantify the cost, but I found the most detailed to be the US Government Interagency Working Group on Social Cost of Greenhouse Gases. You can read the full methodology in their technical document, but the key result is shown in the table ES-1 of the executive summary. I converted the results to 2019 Canadian dollars and used a 3% discount rate which is typical for government agencies and I removed years that have already elapsed to yield the table below:

Social Cost of Carbon CAD_2

As you can see, the social cost of carbon in 2020 under the “average” impact scenario is already significantly higher than the highest level of carbon tax scheduled to be imposed in Canada, which will reach $50 per ton by 2022. The scenarios are based on three different peer reviewed climate impact models explained in the technical document. The “average” scenario assumes no extreme tipping points are reached. Generally, projections have been too conservative and have underestimated the impacts of the climate crisis. Therefore, it may be wiser to consider the high impact scenario, which assumes the 95th percentile for the cost of climate heating. Although these models were produced by the US Government, the Canadian Government has used the same models to estimate the social cost of carbon so I believe the analysis is relevant to Canada.

With impacts as severe as those shown, it starts to make sense when organizations such as the Ecofiscal Commission say that we will need a carbon tax of $210 to reach our 2030 Paris climate targets. Interestingly, documents are now being uncovered that show Canadian oil company Imperial Oil has known for decades that carbon pricing of this magnitude would be necessary to combat the effects of climate change. Their 1991 recommendation of a carbon price of $88.50/ton (converted to 2019 dollars) to “stabilize CO2 emissions” is shockingly close to the social cost of carbon identified in the average impact scenario in the table above. Unfortunately, oil companies typically buried their own climate research and chose to promote denialism instead.

Carbon Pricing in the $80-200/ton range would look like a good deal if it enables us to avoid the worst climate impacts per the table above. So next time the topic of carbon pricing comes up, try not to recoil in terror at the added cost to gasoline and instead think about the significantly larger costs we are trying to avoid.

The societal costs of CO2 emissions are starting to become more and more apparent to governments around the world. Much higher carbon pricing will most likely be coming. Organizations that have a high carbon footprint, including hospitals, need to plan to curtail their fossil fuel consumption to mitigate this oncoming risk.

Through our energy management program, UHN reduced our fossil fuel emissions by almost 20% between 2010 and 2018 despite adding over 600,000 square feet of floor space. We plan to do everything in our power to reach our 2030 targets of a 45% reduction from 2010 levels. This target is based on reductions recommended by the IPCC SR1.5 report.