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Understanding The Social Cost Of Carbon: A Model Diagnostic And Inter-Comparison Study

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  • STEVEN K. ROSE

    (Energy and Environmental Analysis Research Group, Electric Power Research Institute (EPRI), Palo Alto, CA 94304, USA)

  • DELAVANE B. DIAZ

    (Energy and Environmental Analysis Research Group, Electric Power Research Institute (EPRI), Palo Alto, CA 94304, USA)

  • GEOFFREY J. BLANFORD

    (Energy and Environmental Analysis Research Group, Electric Power Research Institute (EPRI), Palo Alto, CA 94304, USA)

Abstract

The social cost of carbon (SCC) is a monetary estimate of global climate change damages to society from an additional unit of carbon dioxide (CO2) emissions. SCCs are used to estimate the benefits of CO2 reductions from policies. However, little is known about the modeling underlying the values or the implied societal risks, making SCC estimates difficult to interpret and assess. This study performs the first in-depth examination of SCC modeling using controlled diagnostic experiments that yield detailed intermediate results, allow for direct comparison of individual components of the models, and facilitate evaluation of the individual model SCCs. Specifically, we analyze DICE, FUND, and PAGE and the multimodel approach used by the US Government. Through our component assessments, we trace SCC differences back to intermediate variables and specific features. We find significant variation in component-level behavior between models driven by model-specific structural and implementation elements, some resulting in artificial differences in results. These elements combine to produce model-specific tendencies in climate and damage responses that contribute to differences observed in SCC outcomes — producing PAGE SCC distributions with longer and fatter right tails and higher averages, followed by DICE with more compact distributions and lower averages, and FUND with distributions that include net benefits and the lowest averages. Overall, our analyses reveal fundamental model behavior relevant to many disciplines of climate research, and identify issues with the models, as well as the overall multimodel approach, that need further consideration. With the growing prominence of SCCs in decision-making, ranging from the local-level to international, improved transparency and technical understanding is essential for informed decisions.

Suggested Citation

  • Steven K. Rose & Delavane B. Diaz & Geoffrey J. Blanford, 2017. "Understanding The Social Cost Of Carbon: A Model Diagnostic And Inter-Comparison Study," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-28, May.
    • Handle: RePEc:wsi:ccexxx:v:08:y::i:02:n:s2010007817500099
    DOI: 10.1142/S2010007817500099
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    References listed on IDEAS

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    1. Laurie Johnson & Chris Hope, 2012. "The social cost of carbon in U.S. regulatory impact analyses: an introduction and critique," Journal of Environmental Studies and Sciences, Springer;Association of Environmental Studies and Sciences, vol. 2(3), pages 205-221, September.
    2. Detlef Vuuren & Jae Edmonds & Mikiko Kainuma & Keywan Riahi & Allison Thomson & Kathy Hibbard & George Hurtt & Tom Kram & Volker Krey & Jean-Francois Lamarque & Toshihiko Masui & Malte Meinshausen & N, 2011. "The representative concentration pathways: an overview," Climatic Change, Springer, vol. 109(1), pages 5-31, November.
    3. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
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    Cited by:

    1. Simon Dietz & Frederick van der Ploeg & Armon Rezai & Frank Venmans, 2021. "Are Economists Getting Climate Dynamics Right and Does It Matter?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(5), pages 895-921.
    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. Shiran Victoria Shen, 2021. "Integrating Political Science into Climate Modeling: An Example of Internalizing the Costs of Climate-Induced Violence in the Optimal Management of the Climate," Sustainability, MDPI, vol. 13(19), pages 1-24, September.
    4. Newell, Richard G. & Prest, Brian C. & Sexton, Steven E., 2021. "The GDP-Temperature relationship: Implications for climate change damages," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    5. Simon Dietz & Bruno Lanz, 2019. "Growth and Adaptation to Climate Change in the Long Run," CESifo Working Paper Series 7986, CESifo.
    6. Souleymane Diallo, 2023. "Natural resource wealth in sub-Saharan Africa: A boon for public investment in renewable energy?," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2023(2), pages 19-40.
    7. Manuel P. dos Santos & Tiago G. Morais & Tiago Domingos & Ricardo F. M. Teixeira, 2022. "Valuing Ecosystem Services Provided by Pasture-Based Beef Farms in Alentejo, Portugal," Land, MDPI, vol. 11(12), pages 1-15, December.
    8. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    9. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.t., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," LSE Research Online Documents on Economics 114941, London School of Economics and Political Science, LSE Library.
    10. Rennert, Kevin & Prest, Brian C. & Pizer, William & Newell, Richard G. & Anthoff, David & Kingdon, Cora & Rennels, Lisa & Cooke, Roger & Raftery, Adrian E. & Ševčíková, Hana & Errickson, Frank, 2021. "The Social Cost of Carbon: Advances in Long-Term Probabilistic Projections of Population, GDP, Emissions, and Discount Rates," RFF Working Paper Series 21-28, Resources for the Future.
    11. Adam Michael Bauer & Cristian Proistosescu & Gernot Wagner, 2023. "Carbon Dioxide as a Risky Asset," CESifo Working Paper Series 10278, CESifo.
    12. Philip Meyer, 2023. "Comment on ‘Climate sensitivity, agricultural productivity and the social cost of carbon in FUND’," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(2), pages 285-290, April.
    13. Pindilli, Emily & Sleeter, Rachel & Hogan, Dianna, 2018. "Estimating the Societal Benefits of Carbon Dioxide Sequestration Through Peatland Restoration," Ecological Economics, Elsevier, vol. 154(C), pages 145-155.
    14. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    15. Laporta, Lia & Domingos, Tiago & Marta-Pedroso, Cristina, 2021. "It's a keeper: Valuing the carbon storage service of Agroforestry ecosystems in the context of CAP Eco-Schemes," Land Use Policy, Elsevier, vol. 109(C).
    16. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.T., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," Ecological Economics, Elsevier, vol. 197(C).

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