Download Calculating the Social Cost of Carbon

Social Cost of Carbon
“The most important number you’ve never heard of.” –
Ackerman and Stanton
According to the IWG (2010), the SCC is:
“an estimate of the monetized damages associated with an
incremental increase of carbon emissions in a given year”
• includes but is not limited to changes in:
“net agricultural productivity, human health, property damages
from increased flood risk, and the value of ecosystem services.”
(Greenstone et al. 2013).
• present value:
sum of the discounted stream of
annual damages
• expected value:
the average we would expect
across many stochastic simulations
of the future
• estimated using IAMs
IAMs are combined economic and climatic models that…
take assumptions on socioeconomic trajectories & climatic dynamics, &…
return estimates of climatic and socioeconomic outcomes.
(Nordhaus)
st
1
IWG’s SCC estimates: published in
2010, updated in 2013 [IWGSCC, 2013]
st
1
IWG’s SCC estimates: published in
2010, updated in 2013 [IWGSCC, 2013]
Some of the relevant model updates:
• explicit representation of sea level rise damages in the DICE and PAGE models;
• updated adaptation assumptions,
• revisions to ensure damages are constrained by GDP, updated regional scaling of damages,
• revised treatment of potentially abrupt shifts in climate damages in the PAGE model;
[IWGSCC, 2010]
EPA has already estimated substantial benefits to
environmental policies using the SCC
Since the 2013 update, the SCC has become a
lightening rod on both sides of the climate
policy debate
“The Obama
administration is on the
path to grossly
underestimating [the
Social Cost of Carbon].”
–Ackerman and Stanton
(2012)
SCC sensitive to uncertain estimates of damages
and choice of discount rate.
[Revesz et al. 2014]
“a truly extraordinary dependence…on the choice of a discount rate” Weitzman (2011)
An implication of discounting is that “earth-shaking—
events, such as disastrous climate change, do not much
matter when they occur in the deep future”
Weitzman (2011)
The use of discounting “over the long term runs into an ethical brick wall.” (Frank Portnay; NYT, 2013)
The climate sensitivity parameter specifies
the increase in global average temp. given
an increase in CO2 conc.—it is uncertain.
Various climate
sensitivity
distributions
(Roe and Baker 2007)
References
Ackerman, F. and Stanton, E. Climate Risks and Carbon Prices: Revising the Social Cost
of Carbon. Economics: The Social Cost of Carbon. Vol. 6, 2012-10 | April 4, 2012 |
http://dx.doi.org/10.5018/economics-ejournal.ja.2012-10
Dietz, S. (2011). The Treatment of Risk and Uncertainty in the US Social Cost of Carbon
for Regulatory Impact Analysis. Economics Discussion Papers, No 2011-30, Kiel
Institute for the World Economy. http://www.economicsejournal.org/economics/discussionpapers/2011-30
Foster, J. (2012). The Social Cost of Carbon: How to Do the Math? The New York Times.
Retrieved from http://green.blogs.nytimes.com/2012/09/18/the-social-cost-ofcarbon-how-to-do-the-math/.
Greenstone, M., Kopits, E., and Wolverton, A. Estimating the Social Cost of Carbon
for Use in U.S. Federal Rulemakings: A Summary and Interpretation. National
Bureau of Economic Research, Working Paper 16913.
http://www.nber.org/papers/w16913
References
Interagency Working Group on the Social Cost of Carbon. (2010). Social Cost of
Carbon for Regulatory Impact Analysis Under Executive Order 12866. February.
United States Government.
Johnson, L.T. and Hope, C. (2012). The social cost of carbon in U.S. regulatory impact
analyses: an introduction and critique. Journal of Environmental Studies and
Science. Retrieved from http://www.ourenergypolicy.org/wpcontent/uploads/2012/09/fulltext.pdf.
Stern, N. (2006). Stern Review: The Economics of Climate Change.
http://www.wwf.se/source.php/1169157/Stern%20Report_Exec%20Summary.pdf.
Weitzman, M. (2011). Fat-Tailed Uncertainty in the Economics of Catastrophic Climate
Change. Review of Environmental Economics and Policy. 2011;5(2):275292.http://scholar.harvard.edu/weitzman/publications/fat-tailed-uncertaintyeconomics-catastrophic-climate-change-0