User:Mollyyg/Social cost of carbon

Calculating
Calculating the SCC requires estimating the impacts of climate change. This includes impacts on human health, as measured by the amount of damage done and the cost to remedy it. Valuations can be difficult because the impacts on ecosystems do not have a market price. In economics, comparing impacts over time involves a discount rate or time preference. This rate determines the weight placed on impacts occurring at different times.

Best estimates of the SCC come from Integrated Assessment Models (IAM) which predict the effects of climate change under various scenarios and allow for calculation of monetized damages. One of the most widely used IAMs is the Dynamic Integrated model of Climate and the Economy (DICE).

The DICE model, developed by William Nordhaus, makes provisions for the calculation of a social cost of carbon. The DICE model defines the SCC to be "equal to the economic impact of a unit of emissions in terms of t-period consumption as a numéraire".

Other popular IAMs used to calculate the social cost of carbon include the Policy Analysis for Greenhouse Effect Model (PAGE) and the Climate Framework for Uncertainty, Negotiation, and Distribution (FUND).

In the United States, using existing IAMs to calculate the SCC has been criticized for lacking appropriate calculations for interactions between regions. For instance, climate catastrophes caused by climate change in one region may have a domino impact on the economy of neighboring regions or trading partners.

The wide range of estimates is explained mostly by underlying uncertainties in the science of climate change including the climate sensitivity, which is a measure of the amount of global warming expected for a doubling in the atmospheric concentration of CO2, different choices of discount rate, treatment of equity, and how potential catastrophic impacts are estimated.

The Interagency Working Group usually uses four values when calculating the cost. The values come from using a discount rate of 2.5%, 3%,and 5 % from the integrated assessment models. The SCC that is being found must include the different probabilities based on what mitigation is being used for climate change that betters or worsens the environment. This is where the fourth value comes into play, because there can be lower-probability, but higher-impact outcomes from climate change. The fourth value zones in on the 3% discounts rate and is set to the 95th percentile when distributing the frequency estimates.

These calculations do not show a scenario in which there are mitigation policies in place. In "The U.S. Government’s Social Cost of Carbon Estimates after Their First Two Years: Pathways for Improvement" Kopp & Mignone (2012) suggest that these calculation rates does not reflect the multiple ways that humans can respond to climate change. They propose an alternative approach that should be considered by calculating through a cost-benefit optimization analysis based on if the public "panics" about climate change and implement mitigation policies accordingly.

Carbon Pricing Recommendations
According to David Anthoff and Johannes Emmerling, the social cost of carbon can be expressed by the following equation: $$SCCx=(\partial w/\partial cx0)^-1 \sum_{t=0}^T \sum_{r=1}^R\partial w/\partial c $$. This equation represents how one additional ton of carbon dioxide impacts the environment and incorporates equity and social impact. Chen, Van der Beek, and Cloud inquire upon the benefits of incorporating a second measure of the externalities of carbon by accounting for both the social cost of carbon and risk cost of carbon. This technique involves accounting for the cost of risk on climate change goals. Matsuo and Schmidt suggest that carbon policies revolve around two renewable energy targets. They focus on bringing the cost down of renewable energy and growth of the industry. The trouble with these objectives in policy is that prioritization can affect how the policy plays out. This can result in a negative impact on the social cost of carbon by affecting how renewable energy is incorporated into society. Newbery, Reiner, and Ritz discuss a carbon price floor in the article “The political economy of a carbon price floor for power generation” as a means of attributing to the social cost of carbon. They discuss how incorporating a CPF in SCC can have a long term effect of less coal usage, an increase in electricity pricing, and more innovation and investment in low-carbon alternatives.

United States[edit]
Executive Order 12866 requires agencies to consider the costs and benefits of any potential regulations and, bearing in mind that some factors may be difficult to assign monetary value, only propose regulations whose benefits would justify the cost. Social cost of carbon estimates allow agencies to bring considerations of the impact of increased carbon dioxide emissions into cost-benefit analyses of proposed regulations.

The United States government was not required to implement greenhouse gas emission requirements until after the 2007 court case U.S. EPA vs. Massachusetts. The U.S. Government struggled to implement greenhouse gas emission requirements due to the lack of an accurate social cost on carbon to guide policy making.

Due to the varying estimates of the social cost of carbon, in 2009, the Office of Management and Budget (OMB) and the Council of Economic Advisers established the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG) in an attempt to develop standards estimates of SCC for the use of federal agencies considering regulatory policies. This establishment was formerly named Interagency Working Group on the Social Cost of Carbon, but has now extended to include multiple greenhouse gasses. The IWG works closely with the National Academies of Sciences, Engineering, and Medicine when researching and creating an up to date report on the SCC.

When developing the 2010 and 2013 social cost of carbon estimates, the U.S. Government Accountability Office used a consensus-based approach with working groups alongside of existing academic works, studies, and models. These created estimates for the social costs and benefits that government agencies could use when creating environmental policies. Members of the public are able also able to weigh in and comment on the developed social cost of carbon.

Along with the Office of Management and Budget (OMB) and the Council of Economic Advisers, six federal agencies worked in the working group. The agencies involved included, The Environmental Protection Agency (EPA), United States Department of Agriculture, United States Department of Commerce, United States Department of Energy, United States Department of Transportation (DOT), and the United States Department of Treasury. The Interagency Working Group analyzed and advised that policy surrounding the social cost of carbon must be implemented based on global impacts instead of domestic. Support for this expansion in scope stems from theories that climate change may lead to global migration and political and environmental destabilization that affects both the national security and economy of the United States, as well as its allies and trading partners. The social cost of carbon In the United States Government should be seen as a way to continuously update estimates with an end goal of public and scientific approval in order to make efficient environmental policy.

The price being set for the social cost of carbon is dependent upon the administration in charge. While Obama was in office, the administration paved the way for the first estimate of putting a price on carbon emissions. The administration estimated that the cost would be $36 per tonne in 2015, $42 in 2020, and $46 in 2025.

The Trump administration estimated between $1-$7 in economic damage in 2020. Trump's Executive Order 13783 mandated that SCC estimates be calculated based on guidelines from the 2003 OMB Circular A-4, rather than guidelines based on more recent climate science.

In February 2021 the US government under the Biden Administration set the social cost of carbon to $51 per tonne, based on a 3% discount rate, but it plans a more thorough review of the issue. The social cost of carbon is used in policymaking and is affected based on administration.