Climate Risks and Carbon Prices: Revising the Social Cost of Carbon

Abstract

The social cost of carbon -or marginal damage caused by an additional ton of carbon dioxide emissions -has been estimated by a U.S. government working group at $21/tCO 2 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21/tCO 2 . In our case combining high climate sensitivity, high damages, and a low discount rate, the social cost of carbon could be almost $900/tCO 2 in 2010, rising to $1,500/tCO 2 in 2050.

Second-Best Renewable Subsidies to De-carbonize the Economy: Commitment and the Green Paradox

“…Assuming that damages are 50% of world GDP at 6 o C and 99% at 12.5 • C, Ackerman and Stanton (2012) recalibrate (5) with ζ 1 = 0.00245, ζ 2 = 2, ζ 3 = 5.021 × 10 −6 , and ζ 4 = 6.76. The extra term in the denominator is included to capture potentially catastrophic losses at high temperatures.…”

The Treatment of Risk and Uncertainty in the US Social Cost of Carbon for Regulatory Impact Analysis

“…3 Clearly this begs the question of how much higher the SCC might be, if the damage function is steeper. A recent paper by Ackerman and Stanton (2012) attempts to answer it using the DICE model, applying a functional form proposed by Weitzman (2012). Furthermore, they also question the damage estimates of the models at low temperatures, drawing on work by Michael Hanemann (2008) that argues damages could also be significantly higher in this realm.…”

Simulation and Assessment of Whole Life-Cycle Carbon Emission Flows from Different Residential Structures

“…Based on the PAGE2002 model with a very low discount rate of 1.4%, Stern obtained $110/tCO 2 as the marginal cost due to increases in carbon emissions [15]. In 2010, the assessment of the US IWGSCC was $21/tCO 2 , and the predicted cost in 2020 was $26/tCO 2 [19]. In 2013, using the PAGE2009 model, Hope calculated the cost to be $106/tCO 2 under the Intergovernmental Panel on Climate Change (IPCC) A1B scenario [16].…”

“…Applying the PAGE and DICE models, McKinsey & Company calculated the average social carbon cost in 2050 to be $45/tCO 2 and $64/tCO 2 , respectively, but the 95% probability value would be $136/tCO 2 [19]. In studying a low-cost pathway for reducing carbon emissions of a particular commercial building and its benefits, Cox et al believed that the unit social carbon cost would rise from $25/tCO 2 in 2015 to $47/tCO 2 in 2050 (based on the 2009 price) [31].…”

“…The marginal benefit can be derived from the trading prices of carbon on the carbon exchange market. However, SCC is not observable from any market; it is the shadow price of social carbon emissions [14][15][16][17][18][19].…”