Resources for the Future (RFF)’s Social Cost of Carbon group has released an update on the social cost of carbon including calculation of damages, which shows the cost to be more than three times current estimates in use.
The new estimate for the social cost of carbon (SCC), following a multidisciplinary comprehensive review is now $185, a different scale to the $51/ per tonne currently used in policy making by the US government.
The SCC puts a monetary value on the economic damages resulting from the addition of an incremental tonne of carbon dioxide into the Earth’s atmosphere, and therefore has a key role in informing government policy.
RFF researchers led a team of economists and scientists to improve the science behind estimates of the social cost of carbon—the means by which the US federal government, state governments, and foreign governments account for climate change in their actions—through a process that ensures the highest levels of scientific quality and transparency and builds the scientific foundation for future estimates.
An update to the SCC was requested by President Joe Biden in January 2021. In the interim his administration used an estimate of $51/tonne. The National Academies of Sciences, Engineering, and Medicine (NASEM) also recommended updating this figure. The Resources for the Future organisation took the recommendations of NASEM from its landmark 2017 report, and worked on it with a multidisciplinary team of scholars. They updated the socioeconomic and emissions projections, climate modelling, and economic discounting based on the latest research.
Social cost of carbon now includes an estimate of impact
The damage function, the last part of the SCC to be calculated and included in the cost, now translates how ‘changes in global temperatures to dollar-value impacts for specific concerns, like human health, agriculture, and sea level rise.’ Effectively what has now been included in the SCC is the overall impact on nature and the environment on which the global economy depends. The result is a complete, integrated climate-economic model for SCC estimation, which the RFF calls the “Greenhouse Gas Impact Value Estimator” (GIVE).
Temperature increase impacts on human health, agriculture and sea level rise were the main fields under investigation in the integrated climate-economic model. The study was global. Cardiovascular and respiratory ailments and the spread of some pathogenic diseases are consequences of temperature rises.
This and the effect on mortality were looked at in 10 regions around the world, combining a number of studies and experts. Values for statistical life for instance were adjusted to take account of a given country’s projected GDP per capita.
A meta-analysis was also used to quantify the effects of temperature change on the crop yields of four of the world’s most common crops: maize (corn), rice, wheat, and soybeans.
Heating and cooling costs come under examination as climate change sheds impacts across the globe. Cooling needs will increase due to the warming climate, which will in turn drive up energy costs and building energy expenditures overall will increase.
The model of sea level rise adopted takes account of adaptability, but still raises the prospect of necessary relocation and costly infrastructure shielding measures.
Uncertainties have been run through the model using Monte Carlo simulations resulting in many thousands of SCC estimates and the final output smooths out the frequency distributions
New discount rate reflects current economic indicators
The SCC calculated by the team assembled by Resources for the Future (RFF) uses a different discount rate than the one developed by Nordhaus and used by the Biden administration. The discount rate makes a key difference to the valuation of cost. One of the most important questions is whether or not this new discount rate will become the norm.
The model is highly dependent on the discount rate used. The SCC was previously drawn from the widely used Dynamic Integrated Climate Economy (DICE) model developed by Nobel Laureate William Nordhaus.
Historically a 3% rate has been used but the RFF has changed that to a 2% discount rate reflecting the falling and historically low interest rates over the past two decades and to better account for the long-lived impacts of climate change. In so doing it adds over $100 to the SCC.
The question of which discount rate should be in use has been the subject of fierce debate for many years, and plays a fundamental role in perceptions of the social cost of carbon. In large part, it explains widespread discrepancies in SCC estimates that can differ by hundreds of dollars.
Exposure of damages from climate change has major implications for policy making
The US federal government has used the SCC to support the introduction of higher emissions standards for power plants and vehicles and it has informed them in their procurement decisions and environmental impact analyses.
Based on the latest science and comprehensive review, this vastly higher SCC figure should bear a far greater burden on policy towards clean and environmentally friendly policies.
The release of the multi year study comes just two weeks after the announcement of a US government strategy to take nature into account in a measurable way in the national balance sheet.
In the wake of the US climate bill, or the Inflation Reduction Act, as it is called, the Greenhouse Gas Impact Value Estimator developed by the RFF should be applied to a raft of policy making.