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Climate Risks and Carbon Prices: Revising the Social Cost of Carbon

Report for the Economics for Equity and the Environment Network

Author(s): Ackerman, F. ; Stanton, E.A.
Year: 2011

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Climate Risks and Carbon Prices: Revising the Social Cost of Carbon

Individual parts & support materials:
Executive summary
Comments by Simon Dietz
Fact sheet
Press release

Audio: Briefing for NGOs (July 12, 2011; MP3 stream)
The "social cost of carbon" – a calculation of the damage caused by each ton of carbon dioxide (CO2) emitted into the atmosphere – is a key factor in U.S. environmental regulation, applied to cost-benefit analyses of a wide range of proposed policies.

The SCC is a sort of "volume dial" for climate policy: The higher the SCC, the tougher (and more expensive) the regulations that policymakers will consider cost-effective. The figure the U.S. government has used since last year, developed by an interagency group, is $21 per ton of CO2.

But that number, this peer-reviewed report shows, is based on fundamentally flawed methodologies and grossly understates the potential impact and uncertainty of climate change.

Making small adjustment to the models to reflect these factors lead to values as high as $893 per ton in 2010 and $1550 in 2050.

Since the projected cost of emissions abatement is significantly lower, the authors conclude, the U.S. government would do better to set an emission reduction target, find the least-cost ways to achieve it, and price carbon accordingly.

"Now that we know how much we could end up paying to endure the impacts of climate change, investing in reducing our emissions is clearly the prudent option," says Frank Ackerman, Ph.D., director of SEI's Climate Economics Group, who co-authored the report with senior economist Elizabeth A. Stanton, Ph.D. "It's the difference between servicing your car, or waiting for it to break down on the highway."

The report was published by Economics for Equity and the Environment Network (E3 Network), packaged with comments by Simon Dietz, of the London School of Economics and Political Science. It builds on more than a year's worth of research and analyses by the authors. Their previous publications on the SCC include:
The Social Cost of Carbon (April 2010)
Damage Estimates and the Social Cost of Carbon: The Need for Change (November 2010)
Climate damages in the FUND model: A disaggregated analysis (January 2011)

Note: A revised version of this report is available on the Economics E-Journal.

In the Media:

"How much does global warming cost?", by Dan Watson, Miller McCune, July 18, 2011.
"Economists Urge Honest Accounting of Carbon's True Costs," by Mindy Lubber, Forbes blog, July 15, 2011.
"Administration Grossly Underestimated Carbon Cost, Says Study," by Tiffany Stecker, ClimateWire (on NYTimes.com), July 14, 2011.
"OR Group Recalculates 'Dollars and Sense' of Carbon Pollution," Public News Service, July 14, 2011.
"US Gov't Climate Change Policies Based on Faulty Data," SustainableBusiness.com, July 14, 2011.
"The carbon-reduction stimulus package," by Cameron Scott, SFGate (San Francisco Chronicle), July 14, 2011.
"Portland Environmental Group Funds Tufts University Economist to Dissect the Cost of Carbon," by Mark Costigan, KLCC Public Radio (Eugene, OR), July 14, 2011.
"Economists find flaws in federal estimate of climate damage," by Douglas Fischer, The Daily Climate, July 13, 2011.

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