Using the social cost of carbon in regulatory deliberations

Abstract

AbstractThis paper reviews the use of social cost of carbon (SCC) values in regulatory deliberations, using practical examples to reveal potential insights. The paper reports on how the inferred choice of input assumptions, and the method used to pick SCC estimates, affects both the size of SCC values and the uncertainty ranges, and that these implicitly influence policy outcomes. The paper also reviews applications of the SCC in the UK. This reveals the following: (1) There is a potential trade‐off between the use of single SCC estimates to ensure consistency, versus use of a range to reflect uncertainty. (2) SCC values are more influential in some sectors than others, which can make it challenging to introduce consistent policies. (3) In some cases the SCC can act as a switching value on major (nonclimate) policy decisions. (4) SCC literature estimates have changed over time, often dramatically. These changes are difficult to implement and policy makers seem to prefer more stable values, even if this means changing input assumptions or methods. (5) For the analysis of climate policy, the decision framework in which SCC values are used makes a large difference to the outcome. (6) There are complex issues and potential inconsistencies involved in applying global SCC values to national decision frameworks comparing costs and benefits. All of these issues caution against a narrow and over‐simplistic application of SCC values in regulatory deliberations. Nonetheless, with appropriate caution and caveats, the paper reports that SCC values can have a role in helping to inform policy. WIREs Clim Change 2011, 2:886–901. doi: 10.1002/wcc.140This article is categorized under: Climate Economics > Economics and Climate Change