What is the cost of emitting (or not emitting) a ton of CO2?
There are at least three ways to estimate the cost associated with emitting one ton of carbon:
We can look at the cost of removing carbon from the atmosphere.
We can look at the cost of the damage that the CO2 does if left in the atmosphere.
We can look at the cost of reducing carbon emissions by various actions.
Information from such analyses is then used to determine prices in the market place, including the cost of purchasing offsets and the carbon tax rates set in some areas of the world.
If we can’t reduce emissions fast enough, we will be paying for what we have put in the atmosphere, one way or another – either in increased costs to adapt, or by paying to remove carbon from the atmosphere. In the IPCC reports, scenarios that keep the temperature increase below 1.5°F include AFOLU (removal by Agriculture, forestry, ocean and land use methods), and those with higher continuing emission also include BECCS (carbon capture and sequestration by mechanical/chemical means) – but this still leaves the question for us: What pathway is least expensive, if we count actual costs, co-benefits of action, and potential human suffering and loss of life?
Cost of removing CO2 from the atmosphere There are a variety of methods for capturing CO2 after it has entered the atmosphere, some involving agriculture or plants, and others via chemical/mechanical processes.
Agriculture/plants: Using deep-rooted plants or prairie plantings in your yard will remove more CO2 from the atmosphere than the common grassy lawn. A typical tree will remove about 1 ton of carbon over 40 years. Peat bogs are excellent carbon sinks as long as they remain wet – drain them to grow crops and they become emitters. Cover crops help sequester carbon in the soil. Typically, implementing agriculturally-based methods costs $30-$100 per ton of carbon that is deposited into the soil long-term (up to several thousand years).
Burning woody waste anaerobically (pyrolysis) produces biochar that is excellent for improving soil quality while sequestering carbon for centuries or millennia. This method goes way back: Pre-Columbian residents of the Americas used this to enrich the soil, and their deposits persist today after more than a thousand years. Production of biochar at levels to impact the total emission of carbon can be done for an estimated $30 - $120/ton.
For the agricultural methods of capturing carbon, the prices are not likely to come down a lot. In some scenarios, the more these are scaled up the higher the incremental cost, that is, the first Gigaton of CO2 removed may be easier and cheaper to capture than the second or fifth or tenth Gigaton, especially if it means diverting increasingly valuable land areas for the purpose.
Chemical/Mechanical: The most recent scenarios developed by the IPCC show a limit to ag removal and more dependence on mechanical/chemical removal of carbon for higher continuing rates of emission of carbon. Mechanical methods (BECCS) of removing CO2 from the atmosphere are being tested. For these, carbon dioxide is combined with some minerals for use as building materials (or just to bury). Presently, BECCS methods are relatively expensive - $100 to $300 per ton up to $600-$800 for the Icelandic pilot facility, ORCA. However, this is a young technology, and the cost may come down; ORCA’s target is to get it down to or below $100/ton operating on a large scale.
The ORCA project in Iceland
Cost of damages caused by increase in CO2 – aka the ‘social cost of carbon’
If we want to look at the cost of not doing anything to reduce carbon emissions, this is called the ‘social cost of carbon’. It is the sum of all the damage, disasters, illness, deaths, supply line disruptions, wars, and relocations that are caused by rising sea levels, an increasing intensity of storms, variability in extreme heat or cold, and other climate-change driven events. This is a hard calculation because many things change in a warmer climate; some costs are easy to calculate (repairing storm damage, or building to withstand greater floods), and some are harder to compute (estimating the impact of a hotter summer on productivity and health) or predict (human choices in the face of changing climate conditions). Experts study these effects and produce estimates, but the number adopted for use is ultimately selected in a more political process.
Currently in the U.S. the social cost of carbon is set to $51/ton. For an average Ames resident who emits 18 tons per year, that is $918 per year. If you have a larger-than-average house, or drive two non-electric cars your emission rate is probably higher.
While we may think of hurricanes and coastal flooding as examples of climate-related disasters, Iowa has seen an increase in billion-dollar disasters from one every other year to more than two per year.
Does the $51/ton cost put us on track to keep ∆T<1.5°?
A very interesting analysis (https://www.nature.com/articles/s41558-020-0880-3) turned this problem around, and looked at how big a price on carbon emissions would it take to get the world on track for zero emissions by 2060, 2050, or 2040. The result was that a price of $32, $52, $93 per metric ton would be required to achieve net zero by these dates. If we take zero by 2050 from the IPCC goals, we again find an estimate of $52/ton. The most interesting takeaway from the report is that the cost of continuing to emit and eventually pay for the consequences is higher than the cost of actively reducing emissions.
Covering the cost: Carbon tax (carbon fee)
In many places there is a carbon fee that you pay when you emit CO2 or other greenhouse gases. This is meant to cover the social cost of the carbon that you have emitted – to undo the damage – and/or to cover processes to remove the emitted carbon or slow emissions.
Carbon tax rates are set taking into account all these direct cost estimates, but then using a political process to find a rate that is likely to be adopted and used. The discussion includes both the cost estimates and the expected impact on the economy of making the changes needed. Depending where you are, these fees range from $20-$80.
If we use $51/ton as an estimate for the cost of carbon emitted, then the SSG plan presented to Council goes from $800M net cost to $600M net savings from now to 2050.
Covering the cost: Purchasing offsets
Offsets may be purchased from a variety of sources, by private citizens or by entities such as power companies or cities. These offsets may take the form of paying for an action that captures and sequesters carbon – such as massive tree planting projects – or of getting credit (points, not dollars) for activities by other people that reduce the emission of carbon, such as a solar farm or wind farm. There is a curious distinction between reducing one’s own emissions (not an offset) and buying the right to count reduction in emission by someone else (counts as an offset).
Until recently the City of Ames was selling the renewable energy credits from some of its emissions-reduction projects. We recently stopped selling those and are keeping them to help Ames document progress towards its climate action goals. These credits count, but whether we sell or keep them does not change the amount by which we are reducing our emissions.
For some entities the ability to sell the renewable energy credits for added income makes projects that reduce emissions more attractive, so the renewable energy credits process does contribute to the overall lowering of greenhouse gas emissions.
There is a huge range in the price associated with offsets, depending in part on demand: Where there are mandatory programs, prices are higher. https://carboncredits.com/carbon-prices-today/ shows the daily fluctuations of carbon offset pricing in Europe, California, and several other locations, and https://secondnature.org/climate-action-guidance/purchasing-carbon-offsets-faqs/ gives advice for institutions aiming to purchase offsets.
If offsets are cheaper than making the changes to reduce emission, is this a better way to go? Not necessarily, because purchased offsets do not carry the co-benefits of mitigation: energy savings, cleaner air, keeping the money local, and other improvements in the community.
So what is the answer for the ‘real’ cost of carbon?
If we consider mostly the real cost of emitting carbon – the cost of damage if we leave it in the atmosphere, or the cost of removing it once it is there – then the minimum value is around $50. I am using $50 -$100 to estimate how much the carbon emission associated with our household activities is impacting the climate.
How does this apply in a real life?
We recently bought 15 shares of SunSmart for $285 each. The city of Ames estimates that over the next 20 years our investment will be paid back from rebates. The city also estimates that over the next 20 years each SunSmart pack will reduce emissions by about 5 tons. That’s $57 per ton of gas not emitted – near the low end of my $50-$100 range for the cost of emissions. In addition, I will eventually get my $57/ton back through rebates. Buying SunSmart shares is a smart move! (I don’t officially own those renewable energy credits – Ames does. But just as a greener grid helps Ames reach its low-carbon goals, making the choice to buy SunSmart shares helps our household reach its low carbon goals.)
When I am looking at our household budget for carbon emission, and looking to see what we can do most easily, having a $50-$100 estimate per ton helps me to decide what changes are worth doing immediately, and which ones can wait and be compensated for in the mean time by purchasing offsets. If it would cost $1000 to replace a fully functional appliance that should last another 5-10 years with one that would save 0.1 ton/year, it probably makes more sense to reduce other sources of emission until the appliance wears out and needs to be replaced. On the other hand, if I can save 1 ton per year with an item that costs $100 and should last at least 2-3 years, then this is a good choice.
The methods for calculating the cost can be compared with another process: How we manage our garbage. Currently, a truck comes by and picks it up, and we pay a monthly fee for the service. So that is the cost of generating garbage for our household. We can imagine a village where for some reason they decide to stop paying for garbage service; they just pile up the bags of garbage along the road through the village. Over time the heaps grow, and there are bad smells, and some illness, that result from the heaps of garbage. They call a town meeting to discuss what to do.
Pay to remove it? The cost of removing the accumulated garbage is high, higher than it would have been with regular pickup all along. Leave it there and cope with the consequences? There is also a debate – do the new neighbors who just moved in have to share in the cost equally with those who have been dumping for a year or more? This is where we are with respect to atmospheric CO2, and the cost estimates that I have made are similar to the estimates for ongoing garbage service vs. accumulating it for removal later.
How does all of this apply to the Ames Low Carbon Scenario presented by SSG?
From the figure below, provided by SSG, we can estimate the net future emissions for the Business as Planned scenario and the Low Carbon Scenario. The total emission is the area under the curve, and I am considering only at 2022 -2050, not 2018-2022. I estimate the blue + grey area under the Business As Planned (BAP) curve from 2022-2050 as 31,000 kTCO2e and the grey area under the Low Carbon curve after 2022 as 4500 kTCO2e.
The SSG report to Council quoted $2.4 billion for the total cost of all the things that need to be done to reach the City’s goal, which comes out to $86/ton. But most of this gets paid back in energy savings over time. If we instead look at the net cost of $0.8 billion, that comes out to $28.50 per ton – cheaper than most of the estimates for cleaning up from disasters, or removing carbon once it is in the atmosphere.
What was also left out of that discussion is that the $2.4B in the low carbon plan is more like a gross domestic product – it is all the money that will change hands under the program – than it is a budget item – money that the city will need to find somewhere. No one complains about a large GDP, and it is considered a cause for celebration when a new business comes to town and raises our GDP.
Ultimately, we have three possible futures: (a) ignore the problem, and pay for adaptation and climate emergencies; (b) continue emitting, and pay for carbon removal; or (c) reduce emissions. All three cost roughly the same amount, but the first one involves a lot of human suffering, the second may well be the most expensive in the end, and the third also improves the quality of life and feeds the economy. The political challenge is that the city needs to take action to achieve (c), while the channels that our money will follow in (a) or (b) is likely not through the city, but through federal taxes and higher prices.
Sources for my numbers:
The recently released report from Working Group III of the IPCC (https://www.ipcc.ch/report/ar6/wg3/) has information about the costs of mitigation, offsets, and removal of carbon from the atmosphere. I will be reviewing key findings from this report in upcoming blogs.
https://costofcarbon.org/ has resources and discussion of how to estimate the social cost of carbon; their current number is about $40 but with some range coming from using different models. The current U.S. federal government social-cost-of-carbon number of $51 comes from news reports such as https://www.washingtonpost.com/climate-environment/2022/02/21/social-cost-of-carbon-biden/.
The carbon removal and sequestration effort in Iceland is described in https://www.smithsonianmag.com/smart-news/worlds-largest-carbon-capture-plant-opens-iceland-180978620/, or just google Orca Project Iceland for other sources.
The range of $20-$80 for carbon taxes in other places is taken from the discussion at the presentation by SSG for the City of Ames; a recording may be viewed at https://www.cityofames.org/government/departments-divisions-i-z/media-production-services/meeting-video-archive where it was the April 5 special meeting of the council.
A fact sheet from the American University in DC (icrlp_fact_sheet_soil_carbon_biochar_181006.pdf) says, “A recent expert assessment estimates that biochar could sequester 0.5 – 2 GtCO2 per year by 2050 at a cost of $30-$120 per ton on CO2.”
Billion dollar disasters in Iowa: Based on NOAA data and news reports such as https://cbs2iowa.com/news/local/billion-dollar-disasters-on-the-rise-in-iowa