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Abstract
AbstractThe social cost of carbon – or marginal damage caused by an additional ton of carbon dioxide emissions – has been estimated by a U.S. government working group at $21/tCO2in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21/tCO2. In our case combining high climate sensitivity, high damages, and a low discount rate, the social cost of carbon could be almost $900/tCO2in 2010, rising to $1,500/tCO2in 2050.The most ambitious scenarios for eliminating carbon dioxide emissions as rapidly as technologically feasible (reaching zero or negative net global emissions by the end of this century) require spending up to $150 to $500 per ton of reductions of carbon dioxide emissions by 2050. Using a reasonable set of alternative assumptions, therefore, the damages from a ton of carbon dioxide emissions in 2050 could exceed the cost of reducing emissions at the maximum technically feasible rate. Once this is the case, the exact value of the social cost of carbon loses importance: the clear policy prescription is to reduce emissions as rapidly as possible, and cost-effectiveness analysis offers better insights for climate policy than costbenefit analysis.
Highlights
With the U.S Environmental Protection Agency’s recent historic step toward regulation of greenhouse gas emissions, cost-benefit analyses of proposed American regulations can include an estimate of damages done by greenhouse gas emissions – or the benefits of reducing those emissions
Our equations (4) and (5) were fitted to minimize the sum of squared deviations from the Nordhaus and Hanemann damage estimates, respectively, at 2.5oC, and the Weitzman point estimates at 6oC and 12oC. 11 A small anomaly is that between 6oC and 12oC the N-W damage function, despite its lower low-temperature damages, is slightly higher than H-W; the gap is greatest at 6.9oC, where N-W damages are 3.8 percent above H-W. This anomaly, which is an artifact of our curve-fitting procedure, may explain one aspect of the results presented below: under conditions where high-temperature damages are likely to be important, the social cost of carbon” (SCC) can be greater with the N-W than with the H-W damage function
13 The Energy Modeling Forum (EMF) scenarios adopted by the Working Group are designed to have declining rates of growth in the second and third centuries
Summary
With the U.S Environmental Protection Agency’s recent historic step toward regulation of greenhouse gas emissions, cost-benefit analyses of proposed American regulations can include an estimate of damages done by greenhouse gas emissions – or the benefits of reducing those emissions. It is, a very small step: the “social cost of carbon” (SCC), i.e. the damage per ton of carbon dioxide, is estimated at $21 for 2010 (Interagency Working Group 2010).. The Working Group has chosen the option that minimizes estimates of climate risks and damages
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