Valuing Climate Damages Updating Estimation of the Social Cost of Carbon Dioxide (2017) / Chapter Skim
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2 Framework for Estimating the Social Cost of Carbon
2 Framework for Estimating the Social Cost of Carbon
Pages 39-60
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projecting future global and regional population, output, and emissions; (2) calculating the effect of emissions on temperature, sea level, and other climate variables; (3)
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. They are used to assess climate change risk, study detailed climate mitigation policy proposals, and investigate climate impacts by sector and region.
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Generally, IAMs vary significantly in structure, geographic resolution, computational algorithms, and applications. In comparison with most other IAMs, the three SC-IAMs used by the IWG -- DICE, FUND, and PAGE -- are specialized in their focus on modeling aggregate global climate dam ages using highly aggregated economic and climate system representations.
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Based on projected emissions, a climate module (detailed in Chapter 4) generates estimates of greenhouse gas concentrations, temperature change, sea level rise, and other needed climate variables.
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An integrated, modular framework focuses on developing each module of the analysis using the criteria outlined in this report and combining them to estimate the SC-CO2. See text for discussion.
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AN INTEGRATED, MODULAR FRAMEWORK Current estimates of the SC-CO2 are obtained by averaging estimates of monetized damages produced by the three SC-IAMs, each of which contains its own climate component and set of damage functions. Although a common set of socioeconomic scenarios and a common distribution of
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. A previous study has documented the differences in the assumptions and functional forms embedded in the climate components of the three SC-IAMs (Rose et al., 2014b)
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This rationale underlies the Interagency Working Group's use of the same socioeconomic scenarios, discount rates, and distribution for climate sensitivity across IAMs, as well as the committee's sug gestion in its Phase 1 report that the IWG develop or adopt a common climate module. CONCLUSION 2-2 An integrated modular framework for SC-CO2 estimation can provide a transparent identification of the inputs, outputs, uncertainties, and linkages among the dif ferent steps of the SC-CO2 estimation process.
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Office of Management and Budget (OMB) Circular A-4 guidance for regulatory impact analysis, which includes general guidelines for "Transparency and Reproducibility of Results" and the "Treatment of Uncertainty."
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: a dashed line indicates that climate damages, evaluated in the damages module, could feed back onto greenhouse gas emissions, as represented in a socioeconomic module. If the output of the damages module shows a reduction in GDP, for example, that reduction may affect the projected GDP in subsequent years and thus the projected emissions from the socioeconomic module.
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Some yield results only in physical terms and do not proceed to economic measures, and the studies to date frequently consider only one country or region and do not provide a basis for extension to the world as a whole. Thus, opportunities for incorporating the relevant feedbacks and interactions in a modular approach depend on the state of scientific knowledge as it will emerge from ongoing research, as well as on details of the damage functions and the nature of the modeling frameworks used for the socioeconomics projections.
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Level of Geographic and Sectoral Detail As the dashed box in Figure 2-1 indicates, estimation and implementation of damage functions may require climate and/or socioeconomic inputs at a regional and/or sectoral level. The level of regional and sector disaggregation necessary will be dictated by the level of disaggregation of
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In the longer run, it may be possible to use models with regional and sectoral detail as the basis of socioeconomic projections and to provide probability distributions of disaggregated values for population and GDP. Similarly, it may be possible in the longer term to obtain probability distributions defined over spatially disaggregated climate variables.
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Correctly calculating the portion of the SC-CO2 that directly affects the United States involves more than examining the direct impacts of 3The 2016 update of the Technical Support Document uses similar language on p.17 (Inter agency Working Group on the Social Cost of Greenhouse Gases, 2016b) but also cites the worldwide commitment by many countries to reducing greenhouse gases in the signing of the Paris Agreement on April 22, 2016.
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borders. As the IWG noted (Interagency Working Group on the Social Cost of Carbon, 2010)
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The emissions associated with any future GDP path depend on policies to control greenhouse gas emissions and on the evolution of energy technologies, energy markets, and land-use patterns -- all of which are uncertain. Although the basic physics of the climate system are well established, the parameters linking emissions to mean global temperature and other climate variables are not known with certainty.
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Another approach requires one to assign subjective weights to each of the alternative probability distributions and recommends the policy for which the weighted average expected utility is maximized. An advantage of these approaches is that they can incorporate multiple probability distributions that are consistent with available information without the need to select a unique probability distribution, as occurs with expected utility.
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These values can then be used in the climate module, which generates, for each projection, a distribution of values of global mean temperature and other climate variables. For each socioeconomic projection and draw from the distribution of climate variables, the damages module can compute a distribution of damage estimates.
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EXPERT JUDGMENT IN SC-CO2 ESTIMATION Construction of any model requires some form of expert judgment to make choices among alternative functional forms, input variables, or other aspects of model structure that are consistent with available data and theoretical understanding. The effects of alternative choices on model results can be particularly important when extrapolating from the conditions under which a model is estimated or calibrated (which are necessarily conditions that have been observed)
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A regularized, institutionalized process would allow both groups to align their activities more sensibly. If the SC-CO2 estimates are to reflect advances in scientific understanding of the climate impacts of greenhouse gas emissions and the economic impacts of climate change, a process is needed to assure that the SC-CO2 estimates are updated on a regular basis.
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Step 1 involves the technical interagency process of updating SC-CO2 estimates, taking into account recommendations for improvement from the scientific community and the public, scientific advances, as well as both internal government and external technical support and scientific peer review of individual modules to ensure that the proposed improvements accurately reflect evolving evidence and approaches. Incorporation of relevant external technical support and peer review of particular components (e.g., by experts in each of the module areas)
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The committee estimated this step could take 18 months to 2 years. The dotted box and lines at the center of the process indicate the multiple opportunities to incorporate research and scientific advances in the SC-CO2 estimation process and for independent reviews to help inform research priorities.
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