What is the best SC-GHG estimate?

What is the best estimate of the SC-GHG to use?

The federal government’s Interagency Working Group on the Social Cost of Greenhouse Gases (IWG), which operated from 2009-2017 and was reconvened in 2021, first released its SC-GHG estimates in 2010 and updated them periodically. It last updated its estimates in 2016, although it updated those estimates for inflation in 2021.  

Table 1 is from the Interagency Working Group’s 2021 Technical Support Document and shows the social cost of carbon estimates, in 2020 dollars, at five-year intervals. 

Table 1: IWG’s Social Cost of CO2 (in 2020 dollars per metric ton of CO2) 

Year of Emission

Average estimate at 5% discount rate

Average estimate at 3% discount rate

Average estimate at 2.5% discount rate

High Impact Estimate (95th percentile estimate at 3% discount rate)

2020

$14

$51

$76

$152

2025

$17

$56

$83

$169

2030

$19

$62

$89

$187

2035

$22

$67

$96

$206

2040

$25

$73

$103

$225

2045

$28

$79

$110

$242

2050

$31

$85

$116

$260

Although the IWG’s estimates were based on the best available science when they were developed, they now fail to reflect years of science and economics and are now widely recognized to substantially undervalue the true costs of climate pollution. In November 2022, the federal Environmental Protection Agency (EPA) drafted a comprehensive update to the SC-GHG applying the most up-to-date science and economics. Those valuations are undergoing peer review and expected to be finalized in 2023 or 2024.  

Table 2 is from EPA’s 2022 Draft Report and shows the social cost of carbon estimates, in 2020 dollars, at ten-year intervals. (Whereas the IWG’s estimates stop at 2050, EPA’s go out to 2080.)

Table 2: EPA’s 2022 Draft Social Cost of CO2 (in 2020 dollars per metric ton of CO2) 

Year of Emission

Average estimate at 2.5% discount rate

Average estimate at 2% discount rate—EPA’s Central Estimate

Average estimate at 1.5% discount rate

2020

$120

$190

$340

2030

$140

$230

$380

2040

$170

$270

$430

2050

$200

$310

$480

2060

$230

$350

$530

2070

$260

$380

$570

2080

$280

$410

$600

Note that the climate-damages value increases over time. This is because the further in the future greenhouse gases are emitted, the greater the damages they will cause, due to the effects of accumulation. Therefore, it is important to calculate the full stream of climate effects, i.e., to take into consideration the emissions from every year of a policy, so that these increasing damages are reflected.

What’s included in the SC-GHG numbers? What isn’t?

The numbers in Table 1 reflect climate damages as estimated by combining three “Integrated Assessment Models”—specifically, DICE, FUND, and PAGE. These models translate carbon dioxide emissions into changes in atmospheric greenhouse concentrations, atmospheric concentrations into changes in temperature, and temperature changes into economic damages. 2

Quantified impacts represented in the models include: changes in energy (via cooling and heating) demand; changes in agricultural and forestry output from changes in average temperature and precipitation levels, and CO2 fertilization; property lost to sea level rise; coastal storms; heat-related illnesses; and some diseases (e.g. malaria and dengue fever); changes in fresh water availability; and some general measures of catastrophic and ecosystem impacts.

However, these models omit significant damages. For instance, the integrated assessment models do not capture the economic costs of additional wildfires. Nor do they capture the possibility for catastrophic climate tipping points. Therefore, the SCC values in Table 1 should be considered extreme lower-bound estimates of the actual costs of marginal carbon emissions. As noted above, EPA’s draft updated estimates reflect the latest available science and are significantly higher than the IWG estimates. (However, the EPA estimates in Table 2 also continue to omit many important climate damages, and thus should also be viewed as underestimates.)

Damages that are poorly quantified or omitted from the integrated assessment models are listed in Table 3.

Table 3 - Omitted Damages from the SCC 5

Category

Specific Impacts Missing from the SCC

Health

  • Respiratory illness from increased ozone pollution, pollen, and wildfire smoke

  • Lyme disease

  • Death, injuries, and illness from omitted natural disasters and mass migration

  • Water, food, sanitation, and shelter

Agriculture

  • Weeds, pests, and pathogens

  • Food price spikes

  • Heat and precipitation extremes

Oceans

  • Acidification, temperature, and extreme weather impacts on fisheries, species extinction and migration, and coral reefs

  • Storm surge interaction with sea level rise

Forests

  • Ecosystem changes such as pest infestations and pathogens, species invasion and migration, flooding and soil erosion

  • Wildfire, including acreage burned, public health impacts from smoke pollution, property losses, and fire management costs (including injuries and deaths)

Ecosystems

  • Biodiversity***, habitat**, and species extinction**

  • Outdoor recreation** and tourism

  • Ecosystem services**

  • Rising value of ecosystems due to increased scarcity

  • Accelerated decline due to mass migration

Productivity and economic growth

  • Impacts on labor productivity and supply from extreme heat and weather, and multiple public health impacts across different damage categories

  • Impacts on infrastructure and capital productivity and supply from damages from extreme weather events and infrastructure and diversion of financial resources toward climate adaptation

  • Impact on research and development from diversion of financial resources toward climate adaptation

Water

  • Availability and competing needs for energy production, sanitation, and other uses

  • Flooding

Transportation

  • Changes in land and ocean transportation

Energy

  • Energy supply distributions

Catastrophic impacts and tipping points

  • Rapid sea level rise**

  • Methane releases from permafrost**

  • Damages at very high temperatures***

  • Unknown catastrophic events

Inter- and intra-regional conflict

  • National security

  • Increased violent conflicts from refugee migration from extreme weather, and food, water, and land scarcity 

*This table lists climate impacts that have been largely unquantified in the economics literature and are therefore omitted from SCC models.

** These impacts are represented in a limited way in one or more of the SCC models: 1) they may be included in some models, and not others; 2) they may be included only partially (e.g., only one or several impacts of many in the category are estimated); 3) they may be estimated using only general terms not specific to any one damage—in these instances, estimated damages are usually very small relative to their potential magnitude, and relative to the impacts explicitly estimated in the models. See complete report for details.

*** While technically represented in SCC models through extrapolations from small temperature changes, there are no available climate damage estimates for large temperature changes, and these may be catastrophic.

Is there a state-specific SC-GHG we can use?

No, there is no SC-GHG estimate that only reflects climate damages to individual states. No models can accurately calculate a domestic-only, let alone a state-only SC-GHG (see more below). Furthermore, as detailed in the next section, it is in your state’s best interest to use an estimate that captures the global damages of a ton of CO2. Your state benefits tremendously from actions of other states and other countries to mitigate climate change, and for numerous reasons discussed below, the use of a global SC-GHG helps encourage reciprocal policy choices. Your state’s citizens and businesses also have financial and personal interests that extend far beyond your physical borders. If all states or countries used jurisdiction-specific numbers, the result would be significant under-regulation.

Why should our state use a global number?

To avoid a global “tragedy of the commons” that could irreparably damage all countries, including the United States, every government worldwide should ideally set policy according to the global social cost of greenhouse gases. 7 

Because greenhouse pollution does not stay within geographic borders but rather mixes in the atmosphere and affects the climate worldwide, each ton emitted by the United States or a particular U.S. state not only creates domestic harms, but also imposes large externalities on the rest of the world. Conversely, each ton of greenhouse gases abated in another country benefits the United States along with the rest of the world. A Policy Integrity report, “Foreign Action, Domestic Windfall,” calculates that global actions on climate change—particularly by Europe, and including efforts of the United States and other countries—already benefited the United States by over $200 billion as of 2015. Furthermore, the report finds that, as of 2015, climate policies worldwide—including efforts by Europe, Canada, and many other countries, as well as U.S. policies from the time—could generate upwards of $2 trillion in direct benefits to the United States by 2030. 8

If all countries set their greenhouse emission levels based on only domestic costs and benefits, ignoring the large global externalities, the aggregate result would be substantially sub-optimal climate protections and significantly increased risks of severe harms to all nations, including the United States. The same concept would apply to state policies where global externalities are not taken into account. Thus, basic economic principles demonstrate that the United States stands to benefit greatly if all countries apply global SC-GHG values.

There are also significant, indirect costs to trade, human health, and security likely to “spill over” to the United States as other regions experience climate change damages. 13 Due to its unique place among countries—both as the largest economy with trade- and investment-dependent links throughout the world, and as a military superpower—the United States is particularly vulnerable to effects that will spill over from other regions of the world.  Spillover scenarios could entail a variety of serious costs to the United States as unchecked climate change devastates other countries.  Correspondingly, mitigation or adaptation efforts that avoid climate damages to foreign countries will radiate benefits back to the United States as well. 14

For more details on the justification for a global value of the social cost of greenhouse gases, see Peter Howard & Jason Schwartz, Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon. 15  Another strong defense of the global valuation as consistent with best economic practices appears in a letter published in the March 2017 of The Review of Environmental Economics and Policy, co-authored by Nobel laureate Kenneth Arrow. 16

 

 

 

 

 

 

 

To avoid a global “tragedy of the commons” that could irreparably damage all countries, including the United States, every government worldwide should ideally set policy according to the global social cost of greenhouse gases. 7 

Because greenhouse pollution does not stay within geographic borders but rather mixes in the atmosphere and affects the climate worldwide, each ton emitted by the United States or a particular U.S. state not only creates domestic harms, but also imposes large externalities on the rest of the world. Conversely, each ton of greenhouse gases abated in another country benefits the United States along with the rest of the world. A Policy Integrity report, “Foreign Action, Domestic Windfall,” calculates that global actions on climate change—particularly by Europe, and including efforts of the United States and other countries—already benefited the United States by over $200 billion as of 2015. Furthermore, the report finds that, as of 2015, climate policies worldwide—including efforts by Europe, Canada, and many other countries, as well as U.S. policies from the time—could generate upwards of $2 trillion in direct benefits to the United States by 2030. 8

If all countries set their greenhouse emission levels based on only domestic costs and benefits, ignoring the large global externalities, the aggregate result would be substantially sub-optimal climate protections and significantly increased risks of severe harms to all nations, including the United States. The same concept would apply to state policies where global externalities are not taken into account. Thus, basic economic principles demonstrate that the United States stands to benefit greatly if all countries apply global SC-GHG values.

There are also significant, indirect costs to trade, human health, and security likely to “spill over” to the United States as other regions experience climate change damages. 13 Due to its unique place among countries—both as the largest economy with trade- and investment-dependent links throughout the world, and as a military superpower—the United States is particularly vulnerable to effects that will spill over from other regions of the world.  Spillover scenarios could entail a variety of serious costs to the United States as unchecked climate change devastates other countries.  Correspondingly, mitigation or adaptation efforts that avoid climate damages to foreign countries will radiate benefits back to the United States as well. 14

For more details on the justification for a global value of the social cost of greenhouse gases, see Peter Howard & Jason Schwartz, Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon15  Another strong defense of the global valuation as consistent with best economic practices appears in a letter published in the March 2017 of The Review of Environmental Economics and Policy, co-authored by Nobel laureate Kenneth Arrow. 16