Social Cost of Carbon “The most important number you’ve never heard of.” – Ackerman and Stanton 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

includes but is not limited to changes in: 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 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.

IAMs are combined economic and climatic models that… take assumptions on socioeconomic trajectories & climatic dynamics, &… return estimates of climatic and socioeconomic outcomes. (Nordhaus)

IWG’s SCC estimates: 1st published in 2010, updated in 2013 [IWGSCC, 2013]

IWG’s SCC estimates: 1st 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 http://www.epa.gov/climatechange/EPAactivities/economics/scc.html

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) http://www.cato.org/blog/social-cost-carbon-inflated-extreme-sea-level-rise-projections 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

SCC sensitive to uncertain estimates of damages and choice of discount rate. Revesz, Richard L., Peter H. Howard, Kenneth Arrow, Lawrence H. Goulder, Robert E. Kopp, Michael A. Livermore, Michael Oppenheimer & Thomas Sterner . “Global warming: Improve economic models of climate change.” Nature 508, 173–175. [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) Weitzman, M. (2011). Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change. Review of Environmental Economics and Policy. 2011;5(2):275-292.http://scholar.harvard.edu/weitzman/publications/fat-tailed-uncertainty-economics-catastrophic-climate-change-0 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-of-carbon-how-to-do-the-math/. 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, G. H., & Baker, M. B. (2007). Why is climate sensitivity so unpredictable?. Science, 318(5850), 629-632. (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.economics-ejournal.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-of-carbon-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/wp-content/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):275-292.http://scholar.harvard.edu/weitzman/publications/fat-tailed-uncertainty-economics-catastrophic-climate-change-0