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 carbon dioxide (CO2) emissions into the atmosphere in that year or, equivalently, the benefits of reducing CO2 emissions by the same amount in that year. The SCC is intended to provide a comprehensive measure of the monetized value of the net damages from global climate change that results 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. Federal agencies use the SCC to value the CO2 emissions impacts of various regulations, including emission and fuel economy standards for vehicles; emission standards for industrial manufacturing, power plants, and solid waste incineration; and appliance energy efficiency standards.
The Interagency Working Group on the Social Cost of Carbon (IWG) developed a methodology for estimating the SCC and applied that methodology to produce estimates that government agencies use in regulatory impact analyses under Executive Order 12866. The IWG requested this Academies interim report to determine if a near-term update to the SCC is warranted, with specific questions pertaining to the representation of the equilibrium response of the climate system in the integrated assessment models used by the SCC modeling structure, as well as the presentation of uncertainty of the SCC estimates. This interim report is the first of two reports requested by the IWG: the second (Phase 2) report will examine potential approaches for a more comprehensive update to the SCC estimates.
The committee concludes that there would not be sufficient benefit of modifying the estimates to merit a near-term update that would be based on revising a specific parameter in the existing framework used by the IWG to reflect the most recent scientific consensus on how global mean temperature is, in equilibrium, affected by CO2 emissions. Furthermore, the committee does not recommend changing the distributional form used to capture uncertainty in the equilibrium CO2 emissions-temperature relationship. Rather than simply updating the distribution used for equilibrium climate sensitivity—the link that translates CO2 emissions to global temperature change—in the current framework, the IWG could undertake efforts toward the adoption or development of a common representation of the relationship between CO2 emissions and global mean surface temperature change, its uncertainty, and its profile over time. The committee outlines specific diagnostic criteria that can be used to assess whether such a module is consistent with the best available science.
Further, the committee recommends that the IWG provide guidance in their technical support documents about how SCC uncertainty should be represented and discussed in individual regulatory impact analyses that use the SCC. The committee recommends that each update of the SCC include a section in the technical support document that discusses the various types of uncertainty in the overall SCC estimation approach, addresses how different models used in SCC estimation capture uncertainty, and discusses uncertainty that is not captured in the estimates. In addition, the committee notes that it is important to separate the effects of the discount rate on the SCC from the effects of other sources of variability. Finally, the committee recommends that
the IWG provide symmetric treatment of both low and high values from the frequency distribution of SCC estimates conditional on each discount rate.
The committee also reminds readers that it will be exploring these and other broader issues further in Phase 2 of this study; the committee may offer further discussion of these issues in its Phase 2 report including the modeling of the climate system and the representation of uncertainty in the estimation of the SCC.