Thomas Rutherford, University of Wisconsin

"DICE revisited: Getting the Social Cost of Carbon Right(er)"

Abstract

The social cost of carbon (SCC) quantifies the economic cost to society of each ton of carbon dioxide or other greenhouse gases emitted into the atmosphere. It has become the key metric for the cost-benefit analysis of climate policies to derive socially optimal greenhouse gas emission pathways and long-term atmospheric temperature targets. Calculations of SCC requires the use of integrated assessment models that capture the full impacts of anthropogenic emissions through the carbon cycle, including economic damages from climate change. Uncertainties in natural science, technological development, or different normative judgements in economic valuations explain a wider range of SCC estimates. In this paper, we focus on three SCC determinants: (i) the carbon cycle, (ii) capital malleability, and (iii) the availability of negative emissions technologies. We perform structural sensitivity analysis using the well-established integrated assessment model DICE. Our analysis indicates that alternative settings for the carbon cycle are of minor importance whereas differences in capital malleability and the cost-potential for negative emissions technologies can have substantial implications for SCC values.

Contact person: Peter Birch Sørensen