The social cost of carbon, a crucial metric used by global policymakers for evaluating the advantages of climate and energy initiatives, is underestimated, as revealed by a recent study.
A recent study by the University of California, Davis, indicates that the social cost of carbon — a key figure that global policymakers rely on to assess the benefits of climate and energy policies — is set too low.
Published in the journal Proceedings of the National Academy of Sciences (PNAS), the study reveals that current calculations for the social cost of carbon, or SCC, do not adequately capture significant ways in which climate change may impact human well-being. When these factors are taken into account, the SCC rises to slightly over $280 per ton of CO2 emitted in 2020, which is more than twice the average found in scientific literature. This figure also exceeds the U.S. Environmental Protection Agency’s central estimate of $190 per ton of CO2.
The lead author, Frances Moore, an associate professor in the Department of Environmental Science and Policy at UC Davis, pointed out, “People’s concerns about climate change often stem from the risks and uncertainties it brings. They think about long-term consequences, such as how climate change may hinder economic growth, and the unique natural environments or cultural heritages that are irreplaceable. These factors are the primary concerns that people have about climate change, yet they are not fully represented in the current SCC estimations used for policy purposes.”
Understanding the impact of climate change
The social cost of carbon measures the societal and economic damages caused by a ton of carbon dioxide, which includes effects on food security, public health, property destruction from natural disasters, and the health of ecological systems. SCC estimates are widely used in policy evaluations, especially to assess the benefits of mitigating greenhouse gas emissions. Nations like the United States, Germany, and Canada, as well as various states, utilize official SCC estimates in their policymaking processes.
According to the study, many of the current government estimates are incomplete and likely underestimate the advantages related to decreased greenhouse gas emissions. This underestimation arises because they neglect certain vital aspects of how climate change can influence human welfare, such as its impact on economic growth and its effects on unique natural environments.
The authors conducted a synthesis of research from existing literature and a survey of experts to encompass these aspects into the SCC estimation, thus delivering the most thorough evaluation of SCC estimates to date.
Addressing overlooked factors
In their research, the authors compiled 1,800 SCC estimates from academic publications over the last two decades, finding a broad array of values averaging at $132 per ton of CO2.
Additionally, the researchers conducted a survey among those who authored the literature, and it was expressed that they believed the actual SCC value is likely double the average of published figures. This belief stems from several omissions in the existing academic literature, such as inadequate consideration of climate tipping points, the effects on vulnerable ecosystems, and the long-lasting economic impacts of climate change.
The researchers employed machine learning techniques to adjust the literature while addressing some of the expert-identified omissions and incorporating more recent data concerning discount rates. This analysis resulted in a 2020 SCC with a mean of $283 per ton of CO2 and an interquartile range spanning from $97 to $369.
The authors emphasize, “Incorporating climate costs into the pricing of economic activities that generate greenhouse gas emissions—whether through direct carbon pricing or indirect methods such as emission regulations, or supporting cleaner alternatives—is crucial for preventing the most severe consequences of climate change.”
The coauthors of the study include Moritz Drupp from the University of Hamburg, James Rising from the University of Delaware, Simon Dietz from the London School of Economics and Political Science, Ivan Rudik from Cornell University, and Gernot Wagner from Columbia Business School.
