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The social cost of carbon (SCC) is the cost, in dollars, of the long-term damage caused by a 1-metric ton increase in carbon dioxide emissions in a given year. It is intended to be a comprehensive estimate of the costs associated with climate change, such as changes in net agricultural productivity, risks to human health, and property damage from increased flood risks. The Interagency Working Group on the Social Cost of Carbon (IWG) developed a methodology to produce SCC estimates which government agencies use in regulatory impact analyses to place a value on the carbon dioxide impacts of various regulations, including standards for vehicle emissions and fuel economy, air pollutants from industrial manufacturing, and emissions from power plants and solid waste incineration.
The IWG—which is co-chaired by the Council of Economic Advisers, Office of Management and Budget and is comprised of many U.S. agencies—requested this study to inform its future revisions of SCC estimates. The study has two phases: In Phase 1, the committee assessed the technical merits and challenges of a narrowly focused, near-term update to the SCC estimates and was to be completed within 6 months of the start of the study. Phase 2 encompasses a wider review of the SCC, with a report expected early 2017.
The committee considered whether a near-term change is warranted on the basis of updating the probability distribution for equilibrium climate sensitivity (ECS) -- a parameter that translates carbon dioxide emissions to global temperature change -- and that was updated by the Intergovernmental Panel on Climate Change in its most recent Fifth Assessment Report (AR5). Because ECS is only one input to the framework used to estimate the SCC, updating the ECS alone may not significantly improve the estimates. Rather than simply updating the distributional form used to capture uncertainty in ECS in the current framework, the IWG could undertake efforts to develop a common representation of the relationship between carbon dioxide emissions and changes in the global mean surface temperature, its uncertainty, and its profile over time. The report outlines specific diagnostic criteria that could be used to assess whether such a representation is consistent with the best available science. The committee also recommended ways to change the IWG’s technical support documents to enhance the qualitative characterization of uncertainties associated with the SCC estimates, which would increase the transparency of the estimates when used in regulatory impact analyses.