Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide

National Academies Press

[Description] The social cost of carbon (SC-CO2) is an economic metric intended to provide a comprehensive estimate of the net damages – that is, the monetized value of the net impacts, both negative and positive – from the global climate change that results from a small (1-metric ton) increase in carbon-dioxide (CO2) emissions. Under Executive Orders regarding regulatory impact analysis and as required by a court ruling, the U.S. government has since 2008 used estimates of the SC-CO2 in federal rulemakings to value the costs and benefits associated with changes in CO2 emissions. In 2010, the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG) developed a methodology for estimating the SC-CO2 across a range of assumptions about future socioeconomic and physical earth systems.

Valuing Climate Changes examines potential approaches, along with their relative merits and challenges, for a comprehensive update to the current methodology. This publication also recommends near- and longer-term research priorities to ensure that the SC- CO2 estimates reflect the best available science.

[Science]  The U.S. government should tweak its approach for estimating the financial impacts of carbon dioxide (CO2) pollution, which it uses in drafting new regulations, according to a report…

The current estimate for the SCC in 2020 is $42 per metric ton of CO2 added to the atmosphere. That means if a particular regulation was projected to reduce CO2 emissions in 2020 by 1 million metric tons, the estimated benefit would be $42 million, which could then be weighed against the cost of implementing the new regulation.

Their committee did not recommend a dollar figure for the SCC, nor were they asked to. Rather they laid out a strategy to strengthen the scientific basis for the estimates, reduce their uncertainties, and increase transparency of the process. The panel recommended that the models that calculate the SCC should include four separate “modules”:

  • A “socioeconomic” module would generate predictions of greenhouse gas emissions based on population and world economic output;
  • A “climate” module would translate those emissions into projected temperature changes;
  • A “damages” module estimates the impact of rising temperatures in dollars; and
  • A “discount” module would link future financial impacts into current dollar amounts.

With this arrangement each of the modules could then be evaluated with the most scientifically relevant information.

The approach “would provide a transparent articulation of the inputs, outputs, uncertainties, and linkages between the different steps,” says Richard Newell, president and CEO of Resources for the Future in Washington, D.C., and co-chair of the NAS committee that wrote the report. Using this arrangement, the panel concluded that the SCC should be updated roughly every 5 years to reflect the latest scientific information.



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