Comprehensive evidence implies a higher social cost of CO2
Abstract:
The social cost of carbon dioxide (SC-CO2) measures the monetized value of the damages to society caused by an incremental metric tonne of CO2 emissions and is a key metric informing climate policy. Used by governments and other decision-makers in benefit–cost analysis for over a decade, SC-CO2 estimates draw on climate science, economics, demography and other disciplines. However, a 2017 report by the US National Academies of Sciences, Engineering, and Medicine1 (NASEM) highlighted that current SC-CO2 estimates no longer reflect the latest research. The report provided a series of recommendations for improving the scientific basis, transparency and uncertainty characterization of SC-CO2 estimates. Here we show that improved probabilistic socioeconomic projections, climate models, damage functions, and discounting methods that collectively reflect theoretically consistent valuation of risk, substantially increase estimates of the SC-CO2. Our preferred mean SC-CO2 estimate is $185 per tonne of CO2 ($44–$413 per tCO2: 5%–95% range, 2020 US dollars) at a near-term risk-free discount rate of 2%, a value 3.6 times higher than the US government’s current value of $51 per tCO2. Our estimates incorporate updated scientific understanding throughout all components of SC-CO2 estimation in the new open-source Greenhouse Gas Impact Value Estimator (GIVE) model, in a manner fully responsive to the near-term NASEM recommendations. Our higher SC-CO2 values, compared with estimates currently used in policy evaluation, substantially increase the estimated benefits of greenhouse gas mitigation and thereby increase the expected net benefits of more stringent climate policies.
Bios:
Kevin Rennert joined RFF as a visiting fellow in 2017. Prior to his arrival at RFF, Rennert served as deputy associate administrator for the Office of Policy at the US Environmental Protection Agency. Leading up to his appointment in the Office of Policy, he worked as senior advisor on Energy for the Senate Finance Committee. In that role, Rennert advised the committee’s Chairman, Senator Ron Wyden (D-OR), on a wide range of topics related to clean energy, efficiency, and policies to reduce greenhouse gas emissions. From 2008 to 2014, he worked on energy and climate legislation as senior professional staff for the Senate Energy Committee. In that capacity, Rennert led the development of the Clean Energy Standard Act of 2012 (S. 2146), a presidential priority that would use market mechanisms to double the amount of electricity generated in the US from low or zero carbon sources by 2035. In 2010 and 2011, Rennert also taught graduate courses in energy policy as adjunct faculty in the Department of Strategic Management and Public Policy at George Washington University.
Brian Prest is an economist and fellow at RFF specializing in the economics of climate change, energy economics, and oil and gas supply. Prest uses economic theory and econometrics to improve energy and environmental policies by assessing their impacts on society. His recent work includes improving the scientific basis of the social cost of carbon and economic modeling of various policies around oil and gas supply. His research has been published in peer-reviewed journals such as Nature, the Brookings Papers on Economic Activity, the Journal of the Association of Environmental and Resource Economists, and the Journal of Environmental Economics and Management. His work has also been featured in popular press outlets including the Washington Post, the Wall Street Journal, the New York Times, Reuters, the Associated Press, and Barron’s.
Prest holds a PhD from Duke University and previously worked in both the public and private sectors. At the Congressional Budget Office, he developed economic models of various energy sectors to analyze the effects of proposed legislation, including the 2009 Waxman-Markey cap-and-trade bill and related Clean Electricity Standards. At NERA Economic Consulting, he conducted electricity market modeling, project valuation, and discounted cash flow analysis of various infrastructure investments in the United States, Latin America, Europe, Africa, and Southeast Asia, with a focus on the power sector.
Summary:
RFF: Improve decision making for the environment
Innovate on better solution
Measuring impacts, benefits and costs
Bringing people together to find common ground
Drives many diverse initiatives
Focus of this talk: Social Cost of Carbon (SCC)
Paper: Comprehensive evidence implies a higher social cost of CO2
Estimate in dollars of the damages of an incremental ton of CO2
Underpins economic analyses related to GHG emissions
Energy efficiency standards
Carbon tax
Payments for zero emissions generators
The SCC initiative
Improve accuracy of SCC estimation
Create common tools/modeling platform for continued improved estimates
Facilitate the US government process of adoption of SCC
Result of the full comprehensive analysis of the various costs:
$185 per ton of CO2
Prior estimate was $51 per ton of CO2
Modular analysis framework
Socioeconomic module: emissions, income, population
Climate module: temperature, sea level rise, ocean acidification
Damages module: monetary impacts of mortality, agriculture, etc.
Discounting: future damages discounted to the present
Every estimate is a probability distribution, so the result is a distribution of possible SCCs
Socioeconomic module
Socioeconomic Projections of country-level population and GDP, accounting for future policies
Population: Used UN estimates of population, extending estimates from 2100 to 2300
Mean/median population peaks at 11B, declining to 75.B afterwards
Analysis is probabilistic, accounting for inter-country correlation
Probabilistic population forecasting: Short to very long-term
Economic growth to 2300:
Based on expert projections
Growth expected to be between 0-4%
An Econometric Model of International Growth Dynamics for Long-Horizon Forecasting
Emissions:
Past is not a great indicator of the future
Got distributions from 10 experts
Allows for evolution of policies and economic growth and how they interact with emissions
Projecting ~60% reduction of CO2 emissions by 2100
Climate module
GIVE model: reduced order approximation of a full climate model with similar statistics of behavior
High level model that predicts Global temperature, sea level rise, ocean acidification based on emissions
Samples from both emissions distribution and distribution of possible climate responses
Damages module
Mortality
Based on Global Health Impacts for Economic Models of Climate Change: A Systematic Review and Meta-Analysis
Meta-analysis of estimates from the literature across many health outcomes (e.g. more heat-related death, less cold-related death)
Implemented in GIVE in 184 countries, 10 sampled regional coefficients)
Agriculture
Based on New science of climate change impacts on agriculture implies higher social cost of carbon
Meta-analysis of 1010 yield impact estimates from 56 studies
Used Global Trade Analysis Project (GTAP) model to estimate impact on trade
Energy
Based on Effects of long-term climate change on global building energy expenditures
Used Global Change Analysis Model (GCAM) to model impact of energy used by different buildings to heat or cool
Most of world pays more; Russia pays less due to reduced heating
Coastal Damages
Based on
Model allows agents to be impacted from sea level rise and have the option of adapting to it to minimize the damages
Discounting
Tied to income growth:
rrs= ρ + η * (economic growth)rs
ρ=pure rate of time preference
η=elasticity of marginal utility of consumption (corresponds to the degree of risk aversion)
ρ and η estimated from A Discounting Rule for the Social Cost of Carbon
Focus on 2% discount rate: ρ=.2%, η=1.24
Probability distribution includes other values
Social cost of carbon is very sensitive to discount rate
2%: $185/ton
3%: $80/ton (this is the rate used by the federal government)
Sources of cost
Mos damage is from agriculture ($84) and mortality ($90)
Energy has small impact ($9)
Sea level rise damages are small ($2) because people can adapt
Since the study:
EPA report: Report on the Social Cost of Greenhouse Gases: Estimates Incorporating Recent Scientific Advances
$190/ton CO2 vs $185 GIVE
$1600/ton Methane vs $1900 GIVE
$55,000/ton N2O vs $54,000 from GIVE
Used GIVE model and Data-driven Spatial Climate Impact Model (DSCIM) (uses different lines of evidence and research that complement the analysis)
Mimi: An Integrated Assessment Modeling Framework
Component model for integrated assessment models
Supports community of model builders, many models already implemented in framework