The social cost of carbon (SCC) for a given year is an estimate, in dollars, of the present discounted value of the damage caused by a 1-metric ton increase in CO2 emissions into the atmosphere in that year or, equivalently, the benefits of reducing CO2 emissions by the same amount in that given year.1 The SCC is intended to provide a comprehensive measure of the monetized value of the net damages from global climate change from an additional unit of CO2, including, but not limited to, changes in net agricultural productivity, energy use, human health effects, and property damages from increased flood risk.2 Federal agencies use the SCC to value the CO2 emissions impacts of various policies including emission and fuel economy standards for vehicles, regulations of industrial air pollutants from industrial manufacturing, emission standards for power plants and solid waste incineration, and appliance energy efficiency standards.
The effort to incorporate the SCC into regulatory decision making started during the latter part of the George W. Bush Administration. Prior to 2008, changes in CO2 emissions were not valued in the cost-benefit analysis required when establishing federal rules and regulations (U.S. Government Accountability Office, 2014, p. 5). After a 2008 court ruling3 that required incorporation of the benefits of CO2 emissions reductions in every regulatory impact analysis, federal agencies began using a variety of methodologies for determining a dollar value for the SCC. In an effort to standardize SCC estimates across the federal government, in 2009 the Obama Administration assembled the Interagency Working Group on the Social Cost of Carbon (IWG) of technical experts from across the government to develop a single set of estimates.4 Interim values for the SCC from the IWG were first used in a regulatory impact analysis for an August 2009 Department of Energy energy efficiency standard for beverage vending machines (74 Federal Register 44914). The SCC has since been used in dozens of regulatory actions (U.S. Government Accountability Office, 2014, App. I). For example, the March 2010 Energy Conservation Program: Energy Conservation Standards for Small Electric Motors Final Rule5 used the SCC to monetize its global climate impacts.
Following the establishment of interim values for the SCC, the IWG undertook a more in-depth process that produced a February 2010 Technical Support Document with a more fully
1In this report, we present all values of the SCC as the cost per metric ton of CO2 emissions.
2Here, and throughout this report, “damage” is taken to represent the net effects of both negative and positive economic outcomes of climate change.
3Center for Biological Diversity v. National Highway Traffic Safety Administration, U.S. Court of Appeals, Ninth Circuit, 538 F.3d 1172 (9th Cir. 2008).
4The IWG, which operates under the U.S. Global Change Committee, is cochaired by the Council of Economic Advisors and the Office of Management and Budget; the other members are the Council on Environmental Quality, the Domestic Policy Council, the Department of Agriculture, the Department of Commerce, the Department of Energy, the Department of Transportation, the Environmental Protection Agency, the National Economic Council, the Office of Science and Technology Policy, and the Department of the Treasury.
5EERE–2007–BT–STD–0007, 75 Federal Register 10873.
developed methodology and a resulting set of four SCC estimates for use by government agencies. The estimates were developed employing the three most widely cited integrated assessment models (IAMs) that are capable of estimating the SCC, which this report refers to as “SCC-IAMs.” Although the three SCC-IAMs were not developed solely to estimate the SCC, they are among the very few models that calculate net economic damages from CO2 emissions. Since there are many IAMs in use in the climate change research community for multiple purposes, this report refers to these three models specifically as SCC-IAMs.6
The IWG retained most of the SCC-IAMs developers’ default assumptions for the parameters and functional forms in the models, but with some important exceptions, and also a harmonized approach to discounting the results in future time periods across the models. The two exceptions are that the IWG used a single probability distribution for the equilibrium climate sensitivity (ECS)7 parameter for all models, as well as a common set of five future socioeconomic and emissions scenarios. In addition, three constant discount rates were used for each SCC-IAM. The analysis resulted in 45 sets of estimates (three IAMs, five socioeconomic-emissions scenarios, one ECS distribution, and three discount rates) for the SCC for a given year, with each set comprising 10,000 estimates drawn on the basis of the uncertain variables in the models. The IWG summarized the results into an average value for each discount rate, plus a fourth value, selected at the 95th percentile for a 3 percent discount rate, intended to represent higher-than-expected impacts from temperature change farther out in the tail of the SCC estimates.
Motivation for the Study
There are significant challenges to estimating a dollar value that reflects all the physical, human, ecological, and economic impacts of climate change. Recognizing that the models and scientific data underlying the SCC estimates evolve and improve over time, the federal government made a commitment to provide regular updates to the estimates. For example, the IWG updated SCC estimates in May 2013 to take into account a variety of model-specific updates in each of the three SCC-IAMs.8
The IWG requested this National Academies of Sciences, Engineering, and Medicine study to assist future revisions of the SCC in two important ways. First, it requested that this study provide government agencies that are part of the IWG with an assessment of the merits and challenges of a limited near-term update to the SCC. Specifically, it requested that the committee consider whether there is sufficient benefit to conducting a limited near-term update to the SCC in light of ECS updates in the Fifth Assessment Report (AR5) of Working Group 1 of the Intergovernmental Panel on Climate Change (IPCC); whether a different distributional form should be used for the ECS; and whether the IWG should adopt changes in its approaches for
6There are many types of IAMs, which vary significantly in structure, resolution, computational algorithm, and application. In comparison with most other IAMs, the three SCC-IAMs used by the IWG, Dynamic Integrated Climate-Economy Model, Framework for Uncertainty, Negotiation and Distribution, and Policy Analysis of the Greenhouse Effect are specialized in their focus on modeling aggregate global climate damages and their highly aggregated economic and energy system representations, rather than being focused on potential economic, energy, and land system development and transformation. We note, however, that these models were not designed solely to estimate the SCC.
7ECS measures the long-term response of global mean temperature to a fixed forcing, conventionally taken as an instantaneous doubling of CO2 concentrations from their preindustrial levels; see Chapter 3.
8In November 2013 and July 2015, the IWG also revised the estimates slightly to account for minor technical corrections.
enhancing the qualitative characterization of limitations and uncertainties in SCC estimates to increase their transparency for use in regulatory impact analyses.
Second, the IWG requested that the committee consider the merits and challenges of a comprehensive update of the SCC to ensure that the estimates reflect the best available science. Specifically, it requested that the committee review the available science to determine its applicability for the choice of IAMs and damage functions and examine issues related to climate science modeling assumptions, socioeconomic and emissions scenarios, the presentation of uncertainty, and discounting. The full statement of task is in Box 1-1.
Accordingly, the committee will recommend approaches that warrant consideration in future updates of the SCC estimates, as well as recommendations for research to advance the science in areas that are particularly useful for estimating the SCC. The committee will examine the merits and challenges of potential approaches for both a near-term limited update and longer-term comprehensive updates to ensure that the SCC estimates reflect the best available science and methods. As such, the study will be conducted in two phases and will result in two reports. This interim report focuses on near-term updates to the SCC estimates, Phase 1 of the study, and is narrowly scoped so that a consensus report could be produced in the short time line required (within 6 months). Phase 2 allows for broader consideration of the SCC.
Strategy to Address the Study Charge
This study was carried out by a committee of experts appointed by the president of the Academies. The committee consists of 13 members, with the assistance of a technical consultant and study staff. Committee expertise spans the issues relevant to the study task: environmental economics, climate science, energy economics, integrated assessment modeling, decision science, climate impacts, statistical modeling, and public policy and regulation. In composing the committee, care was taken to ensure that the membership possessed the necessary balance between research and practice by including academic scientists and other professionals, that members have the relevant disciplinary expertise, and to ensure there are no current connections that might constitute a conflict of interest with the Department of Energy, the Environmental Protection Agency, or other regulatory agency members of the IWG. The committee cochairs are experts in the fields of environmental and energy economics with demonstrated leadership capabilities. Biographical sketches of the committee members and staff are provided in Appendix A.
To address the Phase 1 task, the committee held one open meeting to receive information from federal agency staff to understand and explore its study charge; see Appendix B for the agenda. Closed sessions at the initial meeting and two subsequent meetings were held to refine and finalize the committee’s findings and recommendations. The main body of the report addresses the Phase 1 charge questions.
The committee considered a number of criteria for evaluating the merits and challenges of a near-term update to ECS assumptions within the framework for estimating the SCC. A
“near-term update” was understood by the committee to be actions that government staff could undertake in less than 1 year. Specifically, the committee considered five main issues:
- Accuracy and characterization of uncertainty of climate system modeling. If the ECS is updated within the existing SCC modeling framework to reflect the current scientific consensus as represented by the AR5, will it necessarily improve the representation of the response of temperature change to emissions, relative to more complete, state-of-the-art models of the climate system? Both the accuracy and characterization of uncertainty of the emissions-temperature relationship over time are important aspects of that representation.
- Overall SCC reliability. Would a near-term improvement to the representation of ECS be likely to substantially improve the overall SCC estimate, given other elements of the IWG SCC framework that may also warrant improvement?
- Alternative options for climate system representation. Are there near- to mid-term options—in addition to simply adjusting the ECS within the current framework—for altering the representation of the emission-temperature response in the SCC framework? Would these options enhance the ability of the IWG to undertake future updates in a manner that is well connected to developments in the climate science community?
- Opportunity cost of near-term efforts in terms of potential longer-term improvements. Would the value of any near-term update, in terms of improvement in the SCC, justify the opportunity costs of engaging in the effort, rather than focusing instead on longer-term improvements to the SCC? Would such a change, if implemented, be likely to have a substantial effect on the SCC, thereby potentially warranting the near-term investment of resources related to the development of revised SCC estimates?
- Consistency of Phase 1 with possible Phase 2 conclusions and recommendations. Would any actions taken in response to Phase 1 recommendations likely be consistent with actions taken in response to possible Phase 2 recommendations?
The committee also considered specific technical details in their analysis as described in later chapters.
The rest of the report covers the topics addressed in Phase 1. Chapter 2 describes how the IWG constructed the SCC estimates and is intended to be accessible to all readers. Chapters 3 and 4 present the technical details that underlie the committee’s conclusions and recommendations. Chapter 3 describes the role of the ECS in determining temperature changes and discusses several additional relevant climate metrics that reflect the state of the climate literature. Chapter 4 highlights differences in the way the SCC-IAMs represent the climate system. Chapter 5 then summarizes the conclusions from the previous chapters and provides recommendations for whether a limited, short-term update to the ECS distribution is warranted and on how the qualitative characterization of uncertainty can be improved.
Consideration of broader updates to the SCC—including economic damages and damage functions, socioeconomic scenarios, and discounting—are not addressed in this report. These topics will be addressed in Phase 2 of the study, along with further assessment of climate system modeling the treatment of uncertainty (see Box 1-1, above).
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