Comprehensive evidence implies a higher social cost of CO₂

What if every ton of CO2 were worth three times as much?

Kevin Rennert, Frank Errickson, Brian C. Prest and their colleagues estimate a price of carbon taking into account of externalities and consequences in « Comprehensive Evidence Implies a Higher Social Cost of CO2 » (2022).

They use an open-source model to update the social cost of carbon (SCC), combining socioeconomic projections, climate models, damage estimates, and risk-informed discounting, to show:

• A central SCC is about $185 per ton of CO2 using a 2% near-term discount rate, 3.6 times higher than the U.S. government’s $51/ton value.
• By using probabilistic inputs, the SCC ’s 90% probability interval is estimated from $44 to $413 per ton: while $185 is the best estimate, actual outcomes show a lot of variability.
• Future risks are valued using a theoretically consistent discounting approach: lower risk-free discount rate (2%) significantly raises the SCC, while a higher rate would yield a lower one.
• A higher SCC means the benefits of cutting emissions are larger and boosts the net benefits of stringent climate policies, as every ton of avoided CO2 saves more in damage costs.
• The SCC estimated in this study was used by the U.S. Interagency Working Group as a basis for updating official carbon cost figures.

Using the revised SCC of ~$185 estimated in this article means regulations targeting emissions will show much higher expected benefits and strengthen the case for aggressive climate action.

High-emitting firms could face higher carbon costs than expected if they fail to adapt, while low-carbon technologies stand to increase in value, since each ton of avoided CO2 is worth more to the society.

The proposed SCC range is however wide, which reflects deep uncertainty in projecting centuries of climate damages and economic growth: agricultural impacts for instance span from net benefits to huge losses under different scenarios.

The SCC is also highly sensitive to the discount rate used. The headline $185 figure comes from a relatively low 2% rate: if a higher rate (e.g. 3% or more) were applied, the SCC would drop substantially.