Valuing Climate Damages Updating Estimation of the Social Cost of Carbon Dioxide (2017) / Chapter Skim
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1 Introduction
1 Introduction
Pages 21-38
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and other greenhouse gases into the atmosphere.1 For more than three decades, presidential Executive Orders (EOs) have required that federal agencies consider the monetized impact of effects when conducting regulatory impact analyses: see Box 1-1.
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Office of Management and Budget (OMB) Circular A-4b has provided specific guidance for conducting regulatory impact analysis under EO 12866, replacing prior guidance.
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guidance suggests that the distribution of costs and benefits be measured in regulatory impact analysis. Distributional effects can also be reflected in benefit-cost analysis using welfare weights, although this is rarely done in practice and is not permitted in regulatory impact analysis.
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Updating the probability distribution for the equilibrium climate sensitivity (ECS) to reflect the recent consensus statement in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC)
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Enhancing the qualitative characterization of uncertainties associated with the current SCC estimates in the short-term to increase the transparency associated with using these estimates in regulatory impact analyses. Not ing that as part of a potential comprehensive update Part 2 of the charge requests information regarding the opportunity for a more comprehensive, and possibly more formal or quantitative, treatment of uncertainty.
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HISTORY AND DEVELOPMENT OF THE SOCIAL COST OF CARBON FOR REGULATORY IMPACT ANALYSIS Academic research into the estimation of the social costs of greenhouse gas emissions began with work by economist William Nordhaus in the early 1980s (Nordhaus, 1982) and was continued by numerous researchers in the early 1990s (e.g., Ayres and Walter, 1991; Nordhaus, 1991; Haraden, 1992; Peck and Teisberg, 1992; Reilly and Richards, 1993; Fankhauser, 1994)
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Generally, IAMs vary significantly in structure, geographic resolution, computational algorithm, and application. In comparison with most other IAMs, the three used by the IWG are specialized in their focus on modeling aggregate global climate damages using highly aggregated economic and climate system representations, referred to as "reduced form IAMs": (for details, see Box 2-1 in Chapter 2)
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For each discount rate, the IWG combined the sets across models and socioeconomic emissions scenarios and then selected four values to be presented in regulatory impact analyses: an average value for each of three discount rates, plus a fourth value, selected as the 95th percentile of estimates based on a 3 percent discount rate. The IWG interpreted the 95th percentile as representing higher-than-expected impacts from temperature changes in the tail of the SC-CO2 estimates: see Figure 1-1.15 The set of four estimates from the most recent results is shown in Table 1-1 for CO2 impulses every 10 years from 2010 to 2050, with interim years interpolated.
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represents model estimates, conditional on one of three discount rates, reflecting five different socioeconomic emissions scenarios, 10,000 random parameter draws, and the three SC-IAMs (see text)
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, respectively, for the 5 percent, 3 percent, 2.5 percent discount rates and $81 for the 95th percentile at a 3 percent discount rate. The corresponding four updated SC-CO2 estimates from the May 2013 update for 2020 were $12, $43, $65, and $129 (in 2007 dollars)
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Figure 1-2 illustrates the relative values of the SC-CO2 estimates from 2010 and 2015 for different years of CO2 emission. MOTIVATION FOR THE STUDY There are significant challenges to estimating a dollar value for CO2 emissions that reflects all of the physical and economic impacts of climate change, and the federal government made a commitment to provide regular updates to the estimates as noted above.
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Second, the IWG requested that the committee consider the merits and challenges of a comprehensive update of the SC-CO2 to ensure that the estimates reflect the best available science. Specifically, it requested that the committee review the currently 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.
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SUMMARY OF STUDY'S PHASE 1 REPORT In the Phase 1 report, the committee recommended against a nearterm update to the SCC18 estimates concluding that changing the ECS alone within the current SCC framework would not significantly improve the estimates. The committee also provided several suggestions about how to improve the communication of uncertainty in the IWG's Technical Support Documents.
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RECOMMENDATION 1 The committee recommends against a near-term update to the social cost of carbon based simply on a recalibration of the probability distribution of the equi librium climate sensitivity (ECS) to reflect the recent consensus statement in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change.
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estimates based on five socioeconomic-emissions scenarios, three discount rates, draws from the equilibrium climate sensitivity distribution, and other model-specific uncertain parameters. This set of estimates does not yield a probability distribution that fully characterizes uncertainty about the SCC.
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despite the committee's Phase 1 recommendation to present symmetric high and low values from the frequency distribution of SCC estimates with equal prominence, conditional on each assumed discount rate (Recommendation 4; Box 1-3, above)
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Chapter 3 is focused on updates to socioeconomic and emissions projections; Chapter 4 considers updates to modeling of the Earth system, including temperature change, sea level rise, and ocean acidification; Chapter 5 explores updates to climate impacts and damage estimates; and Chapter 6 presents an updated approach to discounting future damages. Chapter 7 highlights research priorities in key areas that are needed to improve future updates to the SC-CO2 estimates by summarizing research conclusions found throughout the report.
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