Report calls for new framework to estimate social costs of carbon

The federal government should use a new framework to estimate carbon dioxide’s social cost for regulatory impact analysis that would strengthen the scientific basis, provide greater transparency, and improve characterization of the estimates’ uncertainties, a recent report from the National Academies of Sciences, Engineering & Medicine said.

The Jan. 11 report, “Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide,” also identifies near and longer-term improvements that should be adopted for calculating the social cost of carbon (SC-CO2). This is an estimate, in dollars, of net damages society incurs from a 1 metric ton/year increase in CO2 emissions, it said.

The SC-CO2 is intended to be a comprehensive estimate of the net costs and benefits associated with climate change impacts such as changes in net agricultural productivity, risks to human health, and damage from floods and similar events as floods, the report explained.

As required by executive orders and a court ruling, government agencies use the SC-CO2 when analyzing impacts of various regulations, including standards for vehicle emissions and fuel economy, regulation of emissions from power plants, and energy efficiency standards for appliances, it noted.

The federal Interagency Working Group on the Social Cost of Greenhouse Gases (IWG) developed a methodology in 2010 to estimate the SC-CO2. The National Academies committee that produced 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 report said 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.

Next, 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 then are used to estimate potential net damages in dollars, using discounting to convert future damages into present dollar terms. The final IWG analysis averages the results from the three models.

The report recommends that the IWG “unbundle” this process and instead use a framework in which each step of the SC-CO2 calculation is developed as one of four separate but integrated “modules”: the socioeconomic module, which generates projections of greenhouse gas emissions based on its estimates of population and world economic output; the climate module, which translates changes in emissions into changes in temperature; the damages module, which estimates the net impact of temperature changes in dollar terms; and the discounting module.

It said data the socioeconomic module generates would feed into each of the other three modules, and the temperature changes generated by the climate module would inform the damages module. Each module would be developed based on expertise in the relevant scientific disciplines to reflect the most up-to-date research.

The report offers detailed recommendations about how the IWG should develop each of the modules and how the proposed framework could include feedbacks between and interactions within the modules.

The committee outlined several other recommendations that would be feasible to implement in the next 2-3 years and would improve the analysis:

The socioeconomics module should use statistical methods and expert input for projecting distributions of economic activity, population growth, and emissions into the future.

The climate module should employ a simple Earth system model that satisfies well-defined diagnostic tests to confirm that it properly captures the relationships over time between CO2 emissions, atmospheric CO2 concentrations, and global mean surface temperature change and sea-level rise.

The damages module should improve and update existing formulations of climate change damages. This update should draw on recent scientific literature related to both empirical estimation and process-based modeling of damages.

The committee also recommended that the IWG update update the SC-CO2 roughly every 5 years following a regular, three-step process. This process will ensure that for each update, the components of each module, module feedbacks and interactions, and the SC-CO2 framework itself are consistent with the current state of scientific knowledge as reflected in peer-reviewed literature, the report said.

Key uncertainties and sensitivities should be adequately identified and represented in technical support documentation, and uncertainties that cannot be or have not been quantified should also be identified, it suggested. In addition, documentation should explain and justify choices, and the presentation of results should be transparent, the report said.

Contact Nick Snow at nicks@pennwell.com.

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