Commentsonthe2013

TechnicalUpdateoftheSocial
CostofCarbon

PreparedfortheEnvironment,EconomicsandSocietyInstitute
January27,2014

AUTHORS
ElizabethA.Stanton,PhD
FrankAckerman,PhD
JosephDaniel

485MassachusettsAvenue,Suite2
Cambridge,Massachusetts02139

617.661.3248|www.synapseenergy.com

C ONTENTS
1.

OVERVIEW:THENUMBERISBETTERTHANTHEMETHODOLOGY.....................................1

2.

THECLIMATECRISISREQUIRESAPRICEONCARBONEMISSIONS.....................................2

3.

THECHOICEOFMODELSFORTHESCCCALCULATIONHASNOTBEENADEQUATELYEXPLAINED.3

4.

DICE,PAGEANDFUNDFAILTOREPRESENTSTATEOFTHEARTRESEARCHONCLIMATE
IMPACTS.........................................................................................................4

5.

INCREASETOTHESCCLARGELYDUETOHIGHERVALUEOFCATASTROPHICDAMAGESINTHE
PAGEMODEL.................................................................................................8

6.

USEOFSCENARIOSFROMOTHERMODELSYIELDSANINTERNALLYINCONSISTENTMODELING
APPARATUS.....................................................................................................9

7.

CARBONPRICESSHOULDBEBASEDONCOSTEFFECTIVENESSINEMISSIONREDUCTION,NOT
COSTBENEFITANALYSIS....................................................................................10

1.

OVERVIEW:THENUMBERISBETTERTHANTHEMETHODOLOGY

WewelcometheinvitationfromtheOfficeofManagementandBudget(OMB)tocommentonthe
November2013TechnicalUpdateoftheSocialCostofCarbon.Theestimateofthesocialcostofcarbon
(SCC)usedinfederalregulatoryanalysesisanimportantandcontroversialcalculationthathasreceived
toolittlepubliccommentandoutsidereview.
Ourcomments,insummary,arguethattheresultofthe2013revision(i.e.,asignificantincreaseinthe
SCC)isamoveintherightdirection,butisbasedonaflawedmethodologythatshouldbesubstantially
revised.Inthefollowingsectionsweexplainthat:

Theclimatecrisisrequiresavigorouspolicyresponse,includingapriceoncarbon
emissionstoensurethatthesepollutantsarecorrectlyvaluedinregulatoryanalyses
therebyreducingemissions.Thepricemustbehighenoughtoachieveasignificant
reductioninemissions,andthe2013updatedSCCvaluesareastepintheright
direction.

ThechoiceofthethreemodelsusedtocalculatetheSCChasneverbeenjustified,
exceptbyreferencetofrequencyofcitationstothem.Manyothermodelsareavailable.

Twoofthemodels,DICEandPAGE,aretooaggregatedtorepresentresearchonclimate
impactsinanydetail;theyofferonlytheirdevelopersguessesabouthowtoreducethe
vast,multidimensionalarrayofclimatedamagestoafewsummary,monetized
impacts.Thethirdmodel,FUND,attemptsahigherlevelofdisaggregation,butproduces
damageresultsthataretoolowtobeconsistentwithcurrentclimatescience.

The2013changestothefederalSCCaredueprincipallytoupdatesinthePAGEmodel,
includinginitstreatmentofcatastrophicevents.

ThefivescenariosoffutureemissionsusedintheSCCanalysisareessentiallyarbitrary
choicesselected,withlittleexplanation,fromothermodels.

Anticipatedclimatedamagesaresevereandwillgrowsteadilyworseunderabusiness
asusualscenario,butitisimpossibletoputameaningfulpriceonallofthesedamages.

Werecommendapragmaticapproachtocarbonpricing,basedonitsexpectedeffectonemissions
ratherthanonthefutileattemptatacomplete,monetizedcostbenefitanalysis.Liketaxesontobacco
andalcoholuse,apriceoncarbonemissionsisprimarilyjustifiedasanincentivetoreduceharmful
behavior.The2013revisionoftheSCCprovidesareasonableinitialestimateofacarbonpriceforpolicy
purposes;moreworkisneededtorefinethisestimatebyimprovingontheAdministrations
methodology.PublicscrutinyoftheuseoftheSCCinregulatoryimpactanalysis,andoftheunderlying
methodologyincludingthechoiceofmodelsusedtocalculatetheSCCisessentialtosettingtheright
U.S.climatepoliciestodoourpartasanationtoavertclimatechange.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 1

2.

THECLIMATECRISISREQUIRESAPRICEONCARBONEMISSIONS

Climatechangeisreal,andthegreenhousegasemissionsthatcauseitcontinuetogroweveryyear.If
immediate,largescaleactionsarenottakentoabatetheseemissions,theresultingeconomicdamages
1
willbesevere.Ignoringtheproblemwillnotmakeitgoaway. Awarmingworldmeansintensifying
droughts,heatwaves,andhurricanes;risingsealevels;andworseningoceanacidification.The
consensusoftheworldsscientists,formallyandcautiouslyexpressedintheperiodicreportsofthe
IntergovernmentalPanelonClimateChange(IPCC),leavesnoroomfordoubt;leakedearlyversionsof
theIPCCsforthcomingfifthassessmentconveyevengreatercertaintyandurgencythaninpastreports.
Repeatedsurveysofthescientificliteraturehavefoundoverwhelmingagreementthathumanactivity,
primarilycarbonemissions,causesglobalwarming;mostrecently,a2013surveyof20yearsof
worldwideclimateresearchfound97percentsupportfortheconsensusonanthropogenicglobal
2
warming. Forasummaryofthescienceandtheurgencyofactiontoaddressclimatechange,seethe
3

reviewarticlebyaninternationalteamof18researchers,ledbynotedclimatologistJamesHansen. In
short,thereisnocrediblesupportforthedangerouslymisleadingnotionthatthescienceisstillin
doubt,orthatthereisanyseriousquestionaboutthethreatofclimatechangetoourfuturewellbeing.
Ifactiontoreduceemissionsisurgent,howshoulditbedone?Avarietyofregulatoryoptions,including
vehiclefueleconomystandards,EPAproposalsforpowerplantregulations,andothers,arean
importantpolicytool.Impactanalysesforfederalregulationsareconductedintermsofmonetarycosts
andbenefits.Forthisreason,thebenefitsofpoliciesthatreducecarbonemissionsaretypicallyonly
givenweight,aspartofaregulationsimpact,ifthesebenefitsareassignedavalueindollarsandcents.
Wellknownargumentsabouttheefficiencyofmonetaryincentivessuggestthatapriceoncarbon
emissionsappliedtointernalgovernmentanalysesisanessentialpartofaleastcoststrategyforabating

emissionsandmitigatingclimatechange.
Ifamonetaryvalueshouldbeassignedtocarbonemissions,howhighshoulditbe?Verylowvalueswill
induceverysmallchangesinemissions,ifany.ThishasbeendemonstratedbytheRegionalGreenhouse
GasInitiative(RGGI)ofnortheasternstates,andbytheEuropeanUnionsEmissionsTradingSystem(EU
ETS).Inbothcases,acapandtradesystemwithaloosecap(barelybelowunpriced,businessasusual
emissions)hasledtoanearzerocarbonpriceandtolittleeffectonemissions.Howeverthepriceis
calculated,itmustbehighenoughtohaveasignificanteffectonemissionlevels.The2013SCCvalueis
muchhigherthanrecentRGGIandEUETSprices;ifappliedconsistentlytofederalregulatoryimpact
analyses,itcanachieveimportantreductionsinU.S.carbonemissions.Tohavealargerimpacton

FrankAckermanandElizabethA.Stanton(2013)ClimateEconomics:TheStateoftheArt.Routledge(NewYork).
JohnCooketal.,Quantifyingtheconsensusonanthropogenicglobalwarminginthescientificliterature,
EnvironmentalResearchLettersvol.8no.2(2013),doi:10.1088/17489326/8/2/024024.
3
JamesHansenetal.,Assessingdangerousclimatechange:Requiredreductionofcarbonemissionstoprotect
youngpeople,futuregenerationsandnature,PLOSONEvol.8no.12(2013),doi:10.1371/journal.pone.0081648.
2

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 2

nationalemissionsandultimatelyonclimatechangeitself,itwillbeessentialtobroadenthescopeofa
carbonpricetocovermostorallsourcesofemissions.

3.

THECHOICEOFMODELSFORTHESCCCALCULATIONHASNOT
BEENADEQUATELYEXPLAINED

Ofthemanymodelsofclimateeconomics,threewereselectedfortheoriginalSCCcalculationin2010:
DICE,PAGE,andFUND.TheInteragencyWorkingGroup,whichproducedthe2010SCC,heldnopublic
4
hearingsanddidnotsolicitcommentsonitsmethodologyorchoices. Indeed,thereleaseofthe2010
SCC,withoutpriorannouncement,cameasasurprisetoalmosteveryone.Regardingthechoiceof
models,the2010SCCTechnicalSupportDocumentsimplysaid(p.5):
Werelyonthreeintegratedassessmentmodels(IAMs)commonlyusedtoestimatethe
SCC:theFUND,DICE,andPAGEmodels.Thesemodelsarefrequentlycitedinthepeer
reviewedliteratureandusedintheIPCCassessment.Eachmodelisgivenequalweight
intheSCCvaluesdevelopedthroughthisprocess

Thetextgoesontodiscussbothadvantagesanddisadvantagesofthesemodels;thereisnosuggestion
thatothermodelsorapproacheswereconsideredorcomparedtothechosenmethodology.
TheEnvironmentalProtectionAgency(EPA)andtheDepartmentofEnergy(DOE)subsequentlyheldtwo
workshopstodiscusstheSCCprocessandcalculations.Theagendasfortheworkshopsemphasizedthat
theywerenotsolicitingformalcommentsontheSCC,andcouldnotpromiseanyspecificschedulefora
revisedcalculation.Mostofthetimeattheworkshopswasdevotedtopresentationsgivenbyalistof
invitedspeakers,manyofwhomwereexplaininganddefendingtheWorkingGroupsSCC;thatis,the
5
workshopswerenotstructuredasconventionalpublichearingsontheSCC. Athird,invitationonly
workshopdiscussedtheappropriatechoiceofdiscountratesforclimatepolicyanalysis.
The2013revisionoftheSCCwas,again,releasedwithoutpriorannouncementorpublichearings.There
werenochangesofanysortintheWorkingGroupsSCCmethodology;rather,thevalueschanged
becausethethreechosenmodelseachreleasednewestimates.Asthe2013TechnicalUpdateofthe
SocialCostofCarbonputit(p.2):

ApreliminarySCCcalculation,introducedwithlittlefanfareintodraftassessmentsofsomeproposedregulations
in2009,drewafewcommentsinthoseregulatoryproceedings.Thefinal2010valueadoptedaverydifferent
methodologyfromthepreliminarycalculation,butinaremarkablecoincidencearrivedatexactlythesamecentral
estimateof$21perton.
5
Oneofus(FrankAckerman)attendedbothworkshops.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 3

Whileacknowledgingthecontinuedlimitationsoftheapproachtakenbythe
interagencygroupin2010,thisdocumentprovidesanupdateoftheSCCestimates
basedonnewversionsofeachIAM(DICE,PAGE,andFUND).Itdoesnotrevisitother
interagencymodelingdecisionsImprovementsinthewaydamagesaremodeledare
confinedtothosethathavebeenincorporatedinthelatestversionsofthemodelsby
thedevelopersthemselves

Inshort,thediscussionsattheEPADOEworkshops,theextensivepublicationsontheSCC(includinga
2012specialissueofEconomicsejournaldevotedtothetopic),andthreeyearsofongoingclimate
researchandeconomicanalysishadnoinfluenceontheSCCmethodologyorresultingvalues
whatsoeversavetotheextentthatthethreechosenmodelershaveindependentlydecidedto
incorporatenewinformation.
ThisisnotareasonableprocessforsettingU.S.governmentpolicy.Withnopublicdiscussionbeforethe
factorformalreviewafterthefact,controlofthefederalSCChasbeenhandedout,inequalshares,to
threespecificmodelers.TheSCCappearstochangeifandonlyifthesethreemodelerschangetheir
judgments.
Manyotherintegratedassessmentmodelsareavailable.TheEnergyModelingForum(EMF)isan
ongoingprocess,regularlycomparingtheresultsofmultipleclimateeconomicsmodels;indeed,the
emissionsscenariosusedbytheInteragencyWorkingGroupweretakenfromEMFmodels.(Therewas,
again,noexplanationfortheselectionofscenariosfromsomebutnotothersoftheEMFmodels.)Ina
2009reviewarticle,twoofusandacoauthorreviewed30differentclimateeconomicsmodelsthathad
appearedintherecentpeerreviewedliterature,withmanydifferentfeatures,structures,andlevelsof
6
detail. ThedecisiontousesolelytheDICE,PAGE,andFUNDmodelstoestimatethefederalSCC
requiresfurtherjustificationbytheWorkingGroup.

4.

DICE,PAGE,ANDFUNDFAILTOREPRESENTSTATEOFTHE
ARTRESEARCHONCLIMATEIMPACTS

Thethreechosenmodelsarenotinanyselfevidentwaythebestormostreliableinthiswidely
populatedfield.SCCvaluesforallthreemodelsincreasefromthe2010tothe2013Technical
Documents(seeFigure1andFigure2).Twoofthemodels,DICEandPAGE,areamongthesimplestand
easiestclimateeconomicsmodelstooperate;easeofusewouldnotordinarilybeanargumentinfavor
oftheirusebyexpertstosetanimportantgovernmentpolicy.

ElizabethA.Stanton,FrankAckerman,andSivanKartha,Insidetheintegratedassessmentmodels:Fourissuesin
climateeconomics,ClimateandDevelopment1(2009),doi:10.3763/cdev.2009.0015.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 4

Figure1.Average2020SCCbymodelfor2010and2013TechnicalDocuments(in2007$/metricton)

Figure2.95thpercentile2020SCCbymodelfor2010and2013TechnicalDocuments(in2007$/metricton)

TheWorkingGroupusesamodifiedversionoftheDICEmodelthatproducesresultsinresponseto
exogenousscenariosofclimateandtheeconomyratherthanasisthecaseintheoriginalDICE
modelingeachperiodstemperatureandglobalGDPbasedontheemissionsandresultantdamages
determinedtobeoptimalinthepreviousperiod.DICEisalsomodifiedtoproduceMonteCarlo
resultsorresultsaveragedoveralargenumberofmodelrunsusingavarietyofparametervalues.In
theWorkingGroupsDICErunsitisonlytheclimatesensitivityparameter(therelationshipbetween
greenhousegasemissionsandtemperature)thatisvariedaccordingtoawellknowndistribution.
Similarly,PAGE(usingitsoriginaldesign)andFUND(asmodifiedforthispurposebyitsdesigners)also
produceresultsbasedonpresetscenariosofclimateandeconomy,andreturnresultsaveragedover
manyrunsusingvariousparametervalues.PAGEandFUNDsMonteCarlorunsexplorethedistribution
ofnumerousotherparametervaluesinadditiontoclimatesensitivity.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 5

BothDICEandPAGErelyonverysimple,formulaicrelationshipsbetweenclimateandclimatedamages.
Bothmodelshavesince2010updatedtheirrepresentationsofthephysicalclimatecycleandadded
somenuancesincludinganexplicitaccountingofdamagesfromsealevelrisetothesimplefunctions
thatdeterminethesemodelsclimatedamages.Neithermodel,however,approachesthelevelof
7
complexityinestimatingdamagecoststhatisrepresentedinthecurrentclimateeconomicsliterature.
TheDICEdamagefunctioninparticularreliesontheoutdatednotionthatmonetaryclimatedamages
8
canbewellrepresentedasasimplefunctiondependingonthesquareoftemperatureincreases.
Anotherleadingeconomistresearchingclimatechangehassuggestedthatabetterapproximationof
currentclimatesciencewouldbealossof50percentofglobalGDPata6Ctemperatureincrease,anda
9
99percentlossata12Cincrease.
The2013TechnicalUpdateoftheSocialCostofCarbondescribesnumerousupdatesandcorrectionsto
theFUNDmodel.FUNDincludesamorecomplexdamagefunctionwithclimateimpactsdisaggregated
formultiplesectorsbutnonethelesscontinuestoproduceestimatesfarlowerthaneitherDICEorPAGE
atboththeaverageandthe95thpercentileclimatesensitivity(seeFigure3andFigure4).
Figure3.2020SCCbymodelfor2010TechnicalDocuments(in2007$/metricton)

See,forexample,Reillyetal.(2013)Valuingclimateimpactsinintegratedassessmentmodels:theMITIGSM.
ClimaticChange117:561573.
8
FrankAckermanandElizabethA.Stanton(2012)ClimateRisksandCarbonPrices:RevisingtheSocialCostof
Carbon.Economics:TheOpenAccess,OpenAssessmentEJournal,Vol.6,201210.
http://dx.doi.org/10.5018/economicsejournal.ja.201210
9
MartinL.Weitzman(2010)TargetsasInsuranceAgainstCatastrophicClimateDamages.NationalBureauof
EconomicResearchWorkingPaperNo.16136,June2010.http://www.nber.org/papers/w16136.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 6

Figure4.2020SCCbymodelfor2013TechnicalDocuments(in2007$/metricton)

FUNDsdevelopersmaketheassumptionthatthereareimportantclimatebenefitsfromhigher
temperatures,includingreducedspaceheatingcostsandincreasedagriculturalproductivityinsome
10
regions. Infact,theoptimumtemperatureforagricultureinFUND3.7isanincreaseineveryregion;
for12of16worldregions,includingSouthAsia,FUNDscentralestimateisthathighertemperature
11
levelsincreaseproductivityinagricultureuntiltemperatureshaveincreasedbymorethan2C.
Althoughthelatest(2013)articlefromFUNDsdevelopersreferstoongoingresearchonclimateimpacts
onagriculture,themostrecentlypublisheddocumentationforFUNDcitesnosourcespublishedsince
12
1996indescribingthecalibrationofitsagricultureestimates.
Inabout5percentofrunsatthe2.5and3.0percentdiscountratesand25percentofrunsatthe5
percentdiscountratesFUNDfindsthattheSCCisnegativethatis,thatadditionalgreenhousegas
emissionsarebeneficialtotheworldeconomy.TheFUNDdamagefunctionproducesaverageSCCsthat
areapproximatelyonehalfthevalueofthoseprojectedbyDICEandonethirdthoseofPAGE(in2020at
the2.5and3.0percentdiscountrates).
13

EPAswebpageontheSCCcontainsanappropriatelysober,ifsomewhatunderstated,assessment:

10

DavidAnthoffandRichardS.J.Tol(2013)Theuncertaintyaboutthesocialcostofcarbon:Adecomposition
analysisusingFUND.ClimaticChange117:515530.
11
CalculatedfromtheFUND3.7documentation,equationA.3,andcorrespondingdataintheFUND3.7data
tables,bothavailableathttp://www.fundmodel.org/versions,accessedJanuary24,2014.
12
ThearticleisAnthoffandTol(2013),citedinapreviousnote.Theproblemsofoutdatedandimplausibledatain
FUNDsanalysisofagriculturearediscussedinmoredetailinFrankAckermanandCharlesMunitz(2012),Climate
damagesintheFUNDmodel:Adisaggregatedassessment,EcologicalEconomics,77:219224.(Therisksof
divisionbyzeroinFUND3.5,discussedinthatarticle,havebeeneliminatedinFUND3.7,butthedatasourcesfor
agriculturalinputsremainunchanged.)
13
http://www.epa.gov/climatechange/EPAactivities/economics/scc.html,accessedJanuary17,2014.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 7

givencurrentmodelinganddata
limitations,[theSCC]doesnotincludeall
Figure5.2020SCCfor2013TechnicalUpdate(in
importantdamages.AsnotedbytheIPCC
2007$/metricton)withshareof3modelaverage
FourthAssessmentReport,itisverylikely
bymodel
that[SCC]underestimatesthedamages.The
modelsusedtodevelopSCCestimates,
knownasintegratedassessmentmodels,do
notcurrentlyincludealloftheimportant
physical,ecological,andeconomicimpactsof
climatechangerecognizedintheclimate
changeliteraturebecauseofalackofprecise
informationonthenatureofdamagesand
becausethescienceincorporatedintothese
modelsnaturallylagsbehindthemostrecent
research.

5.

INCREASETOTHESCC
LARGELYDUETOHIGHER
VALUEOFCATASTROPHIC
DAMAGESINTHEPAGE
MODEL

ChangesmadetothePAGEmodelaccountfortwo
thirdsoftheincreasefromthe2010to2013versions
oftheaverage2020SCC(61to68percentdepending
ondiscountrate)andfivesixthsoftheincreaseofthe
95thpercentile2020SCC.
ThePAGEdollarvaluecontributiontoallfourofficial
SCCvaluesmorethandoubleddueinnosmallpartto
itsrevisedtreatmentofdamagesfrom
discontinuousornonlinearextreme(thatis,
catastrophic)events.Asthe2013TechnicalUpdateof
theSocialCostofCarbonexplains,intheversionof
PAGEusedforthe2010TechnicalDocumentdamages
fromcatastrophiceventswereincludedastheir
expectedvalue(thevalueofthedamagesmultiplied
bythelikelihoodthatthesedamageswouldoccur)

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 8

thesamemethodusedintheDICEmodel.IntheupdatedPAGEmodel,thefullrangeofcatastrophic
damagecostsisexploredintheMonteCarloanalysis.Thischangetogetherwithalessoptimisticviewof
thepotentialforadaptationmeasurestopreventclimatedamagesandamoreexplicittreatmentofthe
14
damagesfromsealevelriseresultinadramaticincreaseinthePAGESCCestimates.
Recentresearchsuggeststhatthereisachancethatoneormorecatastrophictippingpointswillbe
exceeded,evenwithsignificantmitigationefforts,andthatatleastonesuchthresholdmaybepassedin
thiscentury.LentonandCiscar(2013)critiquethetreatmentofcatastrophicdamagesinDICE,PAGE,
andFUND,andsuggestthatformorerealisticresultsIAMsshouldincorporateestimatesofdamages
frommultipletippingpointsattheclimaticthresholdsindicatedbythemostrecentscientific
15
literature.

6.

USEOFSCENARIOSFROMOTHERMODELSYIELDSAN
INTERNALLYINCONSISTENTMODELINGAPPARATUS

TheWorkingGroupappliesDICE,PAGE,andFUNDtofivepossiblescenariosofthefutureclimatetaken
fromotherclimateeconomicsmodels.Thechoiceofthesescenariosisleftunexplainedbothinthe2010
and2013TechnicalDocuments.Fourofthescenariosapproximatebusinessasusualfuturesinwhich
greenhousegasemissionscontinuetogrowunabated;thefifthscenarioisa550ppmscenarioof
16
moderateemissionsabatement.
TheoriginalDICEandFUNDmodelspriortomodificationsmadebytheWorkingGrouparewelfare
optimizationmodelsthatchooseeachperiodslevelofabatementeffort(and,therefore,itsemissions)
tomaximizeameasureofglobalincome.Theseemissionlevelsendogenouslydetermineeachfuture
periodstemperatures,climatedamages,andGDP.IntheWorkingGroupsanalysis,allthreeIAMsare
runasscenariomodels,inwhichemissionsanddamagesaredeterminednotbythemitigationactions
17
takenbutinsteadbyanexogenouslydeterminedclimatescenario. Resultsforthefiveclimate
scenariosareaveragedacrosseachofthethreemodels;theseaveragemodelresultsareshowninthe
figuresabove.

14

SeealsoChrisHope(2013)CriticalissuesforthecalculationofthesocialcostofCO2:whytheestimatesfrom
PAGE09arehigherthanthosefromPAGE2002.ClimaticChange117:531543.
15
TimothyM.LentonandJuanCarlosCiscar(2013)Integratingtippingpointsintoclimateimpactassessments.
ClimaticChange117:585597.
16
FrankAckermanandElizabethA.Stanton(2012)ClimateRisksandCarbonPrices:RevisingtheSocialCostof
Carbon.Economics:TheOpenAccess,OpenAssessmentEJournal,Vol.6,201210.
http://dx.doi.org/10.5018/economicsejournal.ja.201210
17
ElizabethA.Stanton,FrankAckerman,andSivanKartha,Insidetheintegratedassessmentmodels:Fourissues
inclimateeconomics,ClimateandDevelopment1(2009),doi:10.3763/cdev.2009.0015.

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 9

ThesocialcostofcarbonthedamagesexpectedtooccurfromanadditionaltonofCO2emittedinto
theatmosphereinagivenyeardependsontheseverityoffuturedamages,andthereforeoncurrent
andfutureemissions.Damagesinneartermyearswillimpactontheabilityoftheeconomytoproduce
emissionsinthelongerterm,andemissionsanddamagesintheneartermalsoimpactonthescaleof
theeconomythatwillbeavailabletobedamagedinthelongerterm.Theinterconnectionsamong
causesandeffectsindifferenttimeperiodsarelimitless.
Theeconomicmodelingtoolcommonlyusedtosortoutthesemultiple,iterative,endogenouseffectsis
optimization:thenativeformoftheDICEandFUNDmodels.TheWorkingGroupschoicetoforgo
optimizationandinsteadshoehornexogenousemissionscenariosfromunrelatedIAMsintoitsselected
modelsrequiresexplanation.Sotoodoestheentirelyunexplainedchoiceoffourbusinessasusual
scenariosandamoderatemitigationscenarioforthispurpose.Sincetheresultsfromthesamemodel
differwidelybyscenario,thechoiceofscenariosisanotherimportant,largelyunexamineddeterminant
ofthereportedaverageSCCvalue.

7.

CARBONPRICESSHOULDBEBASEDONCOSTEFFECTIVENESSIN
EMISSIONREDUCTION,NOTCOSTBENEFITANALYSIS

Asemissionscontinuetoincrease,climatedamages,bothcurrentandthoseexpectedinthefuture,will
growworse.Manyofthesedamagesdefyaccuratemonetization,eitherbecausetheyareoutofthe
rangeofourcurrentexperienceorbecausesomeofwhatwillbedestroyedisnotboughtandsoldin
markets(humanlivesandlivelihoods,vulnerableecosystems,thecontinuedexistenceofparticular
species).Attheirextreme,expectedclimatelosses,whilenotreadilytranslatedintodollarsandcents,
reachalevelthatissimplyunacceptable.
Incircumstanceswheretherisksofclimatedamagesarewellknown(evenifnoteasilymonetized)and
toodiretoaccept,theappropriateeconomictoolforpolicyanalysisiscosteffectivenessanalysis,rather
thanthecostbenefitanalysisadvocatedbyOMB.Whenusingcosteffectivenessanalysis,aphysical
limitisset(inthecaseofclimatechangethiswouldbeamaximumpermissibletemperatureincreaseor
aninflexiblecaponemissions).Giventhisconstraint,economicanalysisisusedtodeterminewhich
policysolutionsarethemostcosteffectiveorleastexpensivemethodstoachievethelimit.Calculation
ofthecosteffectivepolicyoptionrequiresacomplexandimportanteconomicanalysis,butitisabetter
formulatedandmorefeasibleanalyticalproblemthatavoidsthemethodologicaldilemmasofcost
benefitcalculations.
IntheeventthatOMBcontinuestorequirecostbenefitanalysisforregulatoryimpactassessments,two
changestothecurrentmethodologywouldeach,independently,resultinemissionreductionsmore
consistentwiththelevelofurgencyidentifiedbyclimatescientists.First,whilethepublishedSCC
scheduleincludesaveragevaluesforthe2.5,3.0,and5.0percentdiscountratesand95thpercentile

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 10

valuesforthe3.0percentdiscountrate,inpractice,theaverageresultsforthe3.0percentdiscount
ratesarereferredtoasthecentralvalueandaregivenprecedenceinregulatorydecisions.No
justificationforthispracticeisgiveninthe2010and2013TechnicalDocuments.Arequirementthatthe
benefitsofregulationexceeditscostsusingthe2.5percentdiscountrateorthe95thpercentileresults
(or,indeed,both)wouldresultinregulatoryoptionswithdeeperemissionreductionsbeingjudged
economicbyOMB.(Forapresentationoftheargumentsforusingastilllowerdiscountrateinclimate
18
analysis,seetheSternReview. )
Second,thepracticeofusingcostbenefitanalysistodeterminewhichregulatoryoptionsarepreferable
mayrequireapriceoncarbon,butitdoesnotrequirethatpricebesetbasedonanSCCorother
damageestimate.Useinsteadoftheexpectedmarketcostofreducingemissions(themarginal
abatementcostormitigationcost)wouldresultinpricesbettersuitedtorepresentingtheeconomy
widecostsofmitigation,andwouldnotsufferfromtheproblemsofincompleteestimationthatplague
environmentalbenefitsassessmentingeneralandSCCestimatesinparticular.TheEMFmodel
comparisonproject,fromwhichthecurrentSCCemissionscenariosareborrowed,consistsprimarilyof
climateeconomicsmodelsusingabottomuporcosteffectivenessmethodologytodetermineacarbon
price.DrawingonthelatestEMFmodelcomparisonforarangeofcarbonpricestoapplyinregulatory
impactanalyseswouldhavetheaddedbenefitofavoidingtheissueofamismatchbetweenmodelsand
climatescenariosusedintheSCCmethodology.
TheupdatedSCCvaluespresentedintheNovember2013TechnicalUpdateoftheSocialCostofCarbon
arehigherthaninthepreviousversionastepintherightdirection.Thisincreaseintheexpectedcost
ofdamagesfromclimatechangereflectstheindividualjudgmentsofthreeclimateeconomicsmodeling
teamswhohavefoundthatthemostrecentclimatesciencewarrantsahighervaluationoffuture
climateimpacts.Weconcurwiththedirectioninwhichthatassessmentismoving,whiledifferingwith
itsmethodsandspecificfeaturesofitscalculations.Thebasicstandardsforpublicscrutinycannotbe
metbythepracticeofsettingtheU.S.SCConthebasisoftheindividualjudgmentsofthreemodeling
groups.Instead,thereshouldbeamoreopenprocess,incorporatingabroaderrangeofexpert
knowledgeandrecentresearch,inwhichregulatoryauthoritiescarryouttheirresponsibilitytojustify
thetechnicalchoicesthataffectpublicpolicy.

18

NicholasStern(2006)TheEconomicsofClimateChange:TheSternReview.CambridgeUniversityPress
(Cambridge,UK).SeealsoFrankAckermanandElizabethA.Stanton(2012)ClimateRisksandCarbonPrices:
RevisingtheSocialCostofCarbon.Economics:TheOpenAccess,OpenAssessmentEJournal,Vol.6,201210.
http://dx.doi.org/10.5018/economicsejournal.ja.201210;andFrankAckermanandElizabethA.Stanton(2013)
ClimateEconomics:TheStateoftheArt.Routledge(NewYork).

SynapseEnergyEconomics,Inc.

Commentsonthe2013TechnicalUpdateoftheSocialCostofCarbon 11