Working Paper: NBER ID: w22807
Authors: Robert S. Pindyck
Abstract: An estimate of the social cost of carbon (SCC) is key to climate policy. But how should we estimate the SCC? A common approach is to use an integrated assessment model (IAM) to simulate time paths for the atmospheric CO2 concentration, its impact on global mean temperature, and the resulting reductions in GDP and consumption. I have argued that IAMs have serious deficiencies that make them poorly suited for this job, but what is the alternative? I present a more transparent approach to estimating an average SCC, which I argue is a more useful guide for policy than the marginal SCC derived from IAMs. I rely on a survey through which I elicit expert opinions regarding (1) the probabilities of alternative economic outcomes of climate change, including extreme outcomes such as a 20% or greater reduction in GDP, but not the particular causes of those outcomes; and (2) the reduction in emissions required to avert an extreme outcome. My estimate of the average SCC is the ratio of the present value of damages from an extreme outcome to the total emission reduction needed to avert such an outcome. I discuss the survey instrument, explain how experts were identified, and present results. I obtain SCC estimates of $200/mt or higher, but the variation across experts is large. Trimming outliers and focusing on experts who expressed a high degree of confidence in their answers yields lower SCCs, $80 to $100/mt.
Keywords: social cost of carbon; climate policy; integrated assessment models; expert elicitation
JEL Codes: D81; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased CO2 emissions (Q54) | economic damages (GDP reduction) (F69) |
| probabilities of extreme economic outcomes (D80) | social cost of carbon (SCC) (H43) |
| social cost of carbon (SCC) (H43) | GDP reduction of 20% or more (F69) |
| present value of damages from extreme outcomes (J17) | average SCC (L89) |
| total emission reductions (H23) | mitigation of economic damages (K13) |