Ford Focus

• Until recently, almost all of them ran on diesel or gasoline, contributing to U.S. demand for fossil fuels and encouraging automakers to continue focusing on fossil-fueled vehicles.
• That’s starting to change, and a new directive that the Biden Administration quietly issued in September 2023 will accelerate the shift.
• Ultimately, it could shift demand enough to change what industries produce, not just for the government but for the entire country.

What’s the social cost of greenhouse gas?

• The social cost of greenhouse gases represents the damage created by emitting 1 metric ton of carbon dioxide, methane and other greenhouse gases into the atmosphere.
• These greenhouse gases, largely from fossil fuels, trap heat in the atmosphere, warming the planet and fueling climate change.
• The result is worsening storms, heat waves, droughts and other disasters that harm humans, infrastructure and economies around the world.

Estimating the cost

• The Obama administration introduced the first federal social cost of carbon to incorporate climate risk in regulatory decisions.
• Recent research suggests that the actual social cost of carbon is closer to $185 per metric ton.
• Without directives like these, decision-makers implicitly set the cost of greenhouse gas emissions to zero in their benefit-cost analyses.

The vehicle fleet as an example

• The federal vehicle fleet is a good example of how the social costs of greenhouse gases add up.
• Let’s compare the costs of driving an electric Ford Focus and an equivalent conventional-fuel Ford Focus.
• Assume each vehicle drives an average of 10,000 miles (about 16,000 kilometers) per year – that’s less than the U.S. average per driver, but it’s a simple number to work with.
• Scale that to 50,000 new vehicle purchases, and that’s a cost difference of about $4 million to $13.5 million per year for emissions from operating the vehicles.

How the government can shift demand

• These types of comparisons under the new directive could help shift purchases toward a wide range of less carbon-intensive products.
• Much of the U.S. government’s spending goes toward carbon-intensive goods and services, such as transportation and infrastructure development.
• Directing agencies to consider and compare the social cost of purchases in each of these sectors will send similar signals to different segments of the market: The demand for less carbon-intensive goods is rising.
• Ultimately, if one of the largest segments of demand, the U.S. government, transitions to less carbon-intensive products, supply will follow.