Integrated Assessment Models and the Social Cost of Carbon: A Review and           Assessment of U.S. Experience

Integrated Assessment Models (IAMs) require parameterization of both economic and climatic processes. The latter includes Equilibrium Climate Sensitivity (ECS), or the temperature response to doubling CO2 levels, and Ocean Heat Uptake (OHU) efficiency. ECS distributions in IAMs have been drawn from climate model runs that lack an empirical basis, and in Monte Carlo experiments may not be constrained to consistent OHU values. Empirical ECS estimates are now available, but have not yet been applied in IAMs. We incorporate a new estimate of the ECS distribution conditioned on observed OHU efficiency into two widely used IAMs. The resulting Social Cost of Carbon (SCC) estimates are much lower than those from models based on simulated ECS parameters. In the DICE model, the average SCC falls by approximately 40–50% depending on the discount rate, while in the FUND model the average SCC falls by over 80%. The span of estimates across discount rates also shrinks substantially.

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THE AGGREGATION DILEMMA IN CLIMATE CHANGE POLICY EVALUATION

Climate Change Economics ◽

10.1142/s2010007818500082 ◽

2018 ◽

Vol 09 (03) ◽

pp. 1850008 ◽

Cited By ~ 2

Author(s):

INGMAR SCHUMACHER

Keyword(s):

Climate Change ◽

Integrated Assessment ◽

Social Cost ◽

Cost Benefit Analysis ◽

Cost Benefit ◽

Carbon Price ◽

Integrated Assessment Model ◽

Assessment Model ◽

Social Cost Of Carbon ◽

Integrated Assessment Models

We show that a policy maker who ignores regional data and instead relies on aggregated integrated assessment models is likely underestimating the carbon price and thus the required climate policy. Based on a simple theoretical model, we give conditions under which the Aggregation Dilemma is expected to play a role in climate change cost-benefit analysis. We then study the importance of the Aggregation Dilemma with the integrated assessment model RICE [Nordhaus and Boyer, (2000) Warning the World: Economic Models of Global Warming. MA: MIT Press]. Aggregating all regions of the RICE-99 model into one region yields a 40% lower social cost of carbon than the RICE model itself predicts. Based on extrapolating the results, a country-level integrated assessment model would give a more than eight times higher social cost of carbon compared to a fully aggregated model. We suggest that these tentative results require researchers to rethink the aggregation level used in integrated assessment models and to develop models at much lower levels of aggregation than currently available.

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SOME RESEARCH CHALLENGES IN THE ECONOMICS OF CLIMATE CHANGE

Climate Change Economics ◽

10.1142/s2010007816500020 ◽

2016 ◽

Vol 07 (02) ◽

pp. 1650002 ◽

Cited By ~ 8

Author(s):

MARSHALL BURKE ◽

MELANIE CRAXTON ◽

CHARLES D. KOLSTAD ◽

CHIKARA ONDA

Keyword(s):

Climate Change ◽

Integrated Assessment ◽

Social Cost ◽

Emissions Reduction ◽

Social Cost Of Carbon ◽

Relevant Research ◽

Climate Policies ◽

The Social ◽

The World ◽

Research Questions

The paper reviews progress in understanding the economics of climate change with an emphasis on identifying promising advances that are both significant and nonmarginal, as well as areas in which there are key gaps in our knowledge. We highlight several important areas in which important policy-relevant research questions remain: improving estimates of climate damage used for determining the social cost of carbon, refining integrated assessment models, and designing better climate policies. As the world moves to understand and implement country emissions reduction pledges in the context of the UNFCCC, understanding the economics of the problem will become even more important. The hope is that the paper is not only informative for existing economists already working in climate change economics, but that it also serves as an inspiration for economists in other areas, or even those in other disciplines, on ways in which to contribute to solving the problem at hand.

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