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New Guidance On Social Cost Of Carbon

Grayson_Lynn_COLORBy E. Lynn Grayson


The Interagency Working Group on Social Cost of Carbon – a multiple federal agency initiative – has issued new guidance on the social cost of carbon to estimate the climate benefits of any rulemakings or other federal actions. Regulators are now assuming that it's worth about $36 to avoid an extra ton of carbon dioxide emitted into the atmosphere up from the old figure of $22 per ton.

The social cost of carbon–the marginal external costs resulting from enhanced climate change due to carbon dioxide emissions–is an important concept in environmental policy. It is closely related to the Pigou tax, the price that should apply to emissions if the aim is to maximize global welfare. The social cost of carbon could therefore theoretically inform assessment of the desirable intensity of climate policy, and it plays a crucial role in any cost-benefit analysis of emission abatement initiatives.

There are two major challenges to estimating the social cost of carbon. First, everything about climate change and its impacts is uncertain. This is partly because climate change is primarily a problem in the future; and partly because both the human and natural components of the Earth system–and thus both the drivers and the impacts of global climate change–are complex and only partially understood. Second, any assessment of the seriousness of climate change requires value judgments about the relative importance of temporal impacts: those that occur now and in the future; spatial impacts: those that impact people near and far across the globe; and the risk aversion of society for uncertain impacts: the more severe damages that may occur less likely, but still plausible, futures.

According to the guidance, the social cost of carbon is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk and the value of ecosystem services due to climate change.