Valuing Climate Damages Updating Estimation of the Social Cost of Carbon Dioxide

Tto provide a comprehensive estimate of the net damages—that is, the monetized value of the net impacts, both negative and posi he social cost of carbon (SC-CO2) is an economic metric intendedtive—from the global climate change that results from a small (1 metric
ton) increase in carbon dioxide (CO2) emissions. Under Executive Orders
regarding regulatory impact analysis and as required by a court ruling,
the U.S. government has since 2008 used estimates of the SC-CO2 in federal rulemakings to value the costs and benefits associated with changes
in CO
2 emissions. In 2010, the Interagency Working Group on the Social
Cost of Greenhouse Gases (IWG) developed a methodology for estimating
the SC-CO
2 across a range of assumptions about future socioeconomic and
physical earth systems.
The IWG asked the National Academies of Sciences, Engineering,
and Medicine to examine potential approaches, along with their relative
merits and challenges, for a comprehensive update to the current methodology. The task was to ensure that the SC-CO2 estimates reflect the best
available science, focusing on issues related to the choice of models and
damage functions, climate science modeling assumptions, socioeconomic
and emissions scenarios, presentation of uncertainty, and discounting.
Integrated assessment models (IAMs) are currently used by the IWG
to estimate the economic consequences of CO2 emissions. The IAMs define
baseline emission trajectories by projecting future economic growth, population, and technological change. In these IAMs, a 1 metric ton increase
in CO
2 emissions is added to the baseline emissions trajectory. This emis-
1
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Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide
2 VALUING CLIMATE DAMAGES
sions increase is translated into an increase in atmospheric CO2 concentrations, which results in an increase in global average temperature.
This temperature change, as well as changes in other relevant variables,
including CO2 concentrations and income, is translated (either explicitly
or implicitly) to physical impacts and monetized damages. These damages include, but are not limited to, market damages, such as changes
in net agricultural productivity, energy use, and property damage from
increased flood risk, as well as nonmarket damages, such as those to
human health and to the services that natural ecosystems provide to society. Because most of the warming caused by an emission of CO2 into the
atmosphere persists for well over a millennium, changes in CO2 emissions
today may affect economic outcomes for centuries to come. Streams of
monetized damages over time are converted into present value terms by
discounting. The present value of damages reflects society’s willingness
to trade value in the future for value today.

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