RFF on the Issues

RFF on the Issues: New Guidance for Calculating Estimates of the Social Cost of Carbon

Jan 18, 2017 | Peter Nelson

A report released last week by the US National Academies of Sciences, Engineering, and Medicine (NAS), recommends an updated methodology for calculating the social cost of carbon (SCC)—a metric used to estimate the net value of global climate change impacts that result from carbon dioxide emissions. As Science reports, since 2008, federal agencies have been required to account for the SCC in rulemaking processes, making it “highly controversial. Members of President-elect Donald Trump’s transition team have criticized the use of the SCC—saying it has been used to justify costly regulation—and have vowed to scrutinize how it is calculated.” The NAS committee that authored the new report, co-chaired by RFF President and CEO Richard G. Newell and RFF Senior Fellow Maureen L. Cropper, suggests a new approach, one based on the best-available science, to “provide a transparent articulation of the inputs, outputs, uncertainties, and linkages between the different steps,” according to Newell.  

The report outlines four modules to include in SCC calculation models, including a discount module, to facilitate comparison of the cost and benefits over time—those for current and future generations. In an earlier article for Resources magazine, Cropper highlighted the critical challenge of assessing the costs and benefits of environmental policies that outlast current generations, where discounting comes into play. She explains the two economic rationales for determining the rate at which future costs and benefits are discounted. Learn more about the underlying principles of discounting and how they inform calculations such as those used to estimate the SCC:

How Should Benefits and Costs Be Discounted in an Intergenerational Context?

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The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.