The social cost of carbon dioxide under climate-economy feedbacks and temperature variability

Could feedback loops and volatility double the cost of carbon?

Jarmo Kikstra and his co-authors examine how including complex feedbacks and climate extremes affects the Social Cost of Carbon (SCC) in ”The Social Cost of Carbon Dioxide Under Climate–Economy Feedbacks and Temperature Variability” (2021).

They compare two two integrated assessment models, PAGE-ICE and its decade-old predecessor PAGE09, to measure the impact of updated climate and economic dynamics and show:

• PAGE-ICE yields an SCC about twice as high as PAGE09, from an average of $158 to $307.
• Certain physical climate feedbacks like permafrost carbon release or albedo changes only caused a small increase in the SCC and had a lower impact than other model updates like economics.
• Incorporating climate-economy feedbacks, especially the idea that climate damage can slow economic growth, led to a manifold increase in the SCC.
• PAGE-ICE allows climate damages to persistently dampen GDP growth rather than just one-time losses, which dramatically increases the long-run costs of CO2e.
• Most of the SCC increase is attributable to higher damages in the Global South.
• Year-to-year temperature variability widens the SCC distribution: there is a greater probability of extremely high SCC values when you factor in climate volatility.

This article shows improvements in modelling since the 2000s roughly double the estimated cost of carbon, meaning climate damages will seriously impede growth and welfare without significant improvements in resilience.

Failing to account for climate-economy feedbacks could mean undervaluing carbon by multiples and sow the seeds of slower growth tomorrow, especially in developing countries.

Every ton of CO2 has compounding costs:damage to infrastructure can depress future productivity, a cost not captured in simpler models.

As a limitation, the magnitude of the SCC increase hinges on how we model damage persistence and adaptive capacity, which are still areas of active research.