Emerging threatsNew framework needed for estimating the social cost of carbon: Report

To estimate the social cost of carbon dioxide for use in regulatory impact analyses, the federal government should use a new framework that would strengthen the scientific basis, provide greater transparency, and improve characterization of the uncertainties of the estimates, says a new report by the National Academies of Sciences, Engineering, and Medicine. The report also identifies a number of near- and longer-term improvements that should be made for calculating the social cost of carbon.

The social cost of carbon (SC-CO₂) is an estimate, in dollars, of the net damages incurred by society from a 1 metric ton increase in carbon dioxide emissions in a given year. The SC-CO₂ is intended to be a comprehensive estimate of the net damages from carbon emissions — that is, the net costs and benefits associated with climate change impacts such as changes in net agricultural productivity, risks to human health, and damage from such events as floods. As required by executive orders and a court ruling, government agencies use the SC-CO₂ when analyzing the impacts of various regulations, including standards for vehicle emissions and fuel economy, regulation of emissions from power plants, and energy efficiency standards for appliances. 

The NAS says that the federal Interagency Working Group on the Social Cost of Greenhouse Gases (IWG) developed in 2010 a methodology to estimate the SC-CO₂. The National Academies committee that authored the report was charged with examining potential approaches for a comprehensive update to this methodology to ensure that SC-CO₂ estimates reflect the best available science. The committee was not asked to estimate a value for the social cost of carbon.

The IWG’s methodology uses three distinct models to estimate the economic consequences of CO₂ emissions. First, a baseline of CO₂ emissions is defined along with projections of underlying socioeconomic factors — global economic growth and population — decades into the future. Then, a small increase in CO₂ emissions is added to the baseline for each of the three models, which is translated into an increase in atmospheric CO₂ and a resulting increase in global mean temperature. These results are used to estimate potential net damages in dollars, using discounting to convert future damages into present dollars. The final IWG analysis averages the results from the three models.