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The Use of a Social Cost of Carbon in Canadian Cost-Benefit Analysis

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  • Anthony Heyes
  • Dylan Morgan
  • Nicholas Rivers

Abstract

The Social Cost of Carbon (SCC) is being adopted for systematic use in cost-benefit analysis (CBA) conducted by the Government of Canada. Although there are potential efficiency gains from its application, we argue that the SCC may be inappropriate for use in CBA for three reasons. First, as currently calculated, the SCC typically excludes the potential for catastrophes and certain types of climate damages, and assumes perfect substitutability between natural and human capital. For these reasons, it is likely to be biased downwards, and as such would provide misleading advice to policy-makers. Second, the SCC is a global measure of benefits, whereas standard practice in CBA is to include only domestic costs and benefits. Accounting for costs borne outside of Canada and along only one dimension (carbon damage) risks reducing economic efficiency and confusing the users of CBA studies. Third, SCC-based decision-making is unlikely to be consistent with Canadian commitments to international partners on emissions reductions; so its adoption risks institutionalizing non-delivery of those commitments.

Suggested Citation

  • Anthony Heyes & Dylan Morgan & Nicholas Rivers, 2013. "The Use of a Social Cost of Carbon in Canadian Cost-Benefit Analysis," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 67-80, August.
    • Handle: RePEc:cpp:issued:v:39:y:2013:i:s2:p:67-80
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    References listed on IDEAS

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    1. David Pearce, 2003. "The Social Cost of Carbon and its Policy Implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(3), pages 362-384.
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    5. Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July.
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    Cited by:

    1. Yang, Xi & Teng, Fei & Xi, Xiaoqian & Khayrullin, Egor & Zhang, Qi, 2018. "Cost–benefit analysis of China’s Intended Nationally Determined Contributions based on carbon marginal cost curves," Applied Energy, Elsevier, vol. 227(C), pages 415-425.
    2. Richard S.J. Tol, 2018. "The impact of climate change and the social cost of carbon," Working Paper Series 1318, Department of Economics, University of Sussex Business School.
    3. Tol, Richard S.J., 2019. "A social cost of carbon for (almost) every country," Energy Economics, Elsevier, vol. 83(C), pages 555-566.

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