RFF Initiative

Updating and Improving the Social Cost of Carbon

Work by RFF experts will update and improve estimates of the social cost of carbon and inform its use in benefit-cost analyses of policy options and other actions that affect greenhouse gas emissions.

The social cost of carbon is an economic tool used to quantify the societal benefits of reducing —or conversely the damages of emitting—one ton of carbon dioxide emissions in the atmosphere. The estimate informs billions of dollars of policy and investment decisions by federal and state governments, as well as businesses, so it is critical to use the most current and informed value possible.

The US federal government, for example, has used the social cost of carbon to account for the effects of its actions on climate change in over 150 proposed and final regulatory measures, including land use decisions and standards for vehicle fuel efficiency, power plant emissions, and appliances. The estimates and methodology used by the United States have been adopted in full by the Canadian government. In New York and Illinois, the social cost of carbon serves as the basis for the value of “zero emission credits” paid to utilities under state clean energy legislation. In Colorado, utilities are now required to use the federal social cost of carbon in their resource planning. The estimation methodology is also being considered for adoption by the Mexican government and by regulatory agencies in California and Minnesota.

At the request of the US ­federal government, in January 2017 the National Academies of Sciences, Engineering, and Medicine (NAS) released a comprehensive review of options for updating the methodology for estimating the social cost of carbon. The report made a number of key recommendations to ensure that the estimates reflect the best available science and to enhance their transparency. RFF is leading a multi-year, multidisciplinary research initiative that will advance the NAS recommendations and lead to a comprehensive update of the social cost of carbon estimates, as well as enhance the capabilities of decisionmakers and analysts worldwide who use the social cost of carbon to measure the benefits of emissions reductions.

Key Elements of the Initiative

  • Transitioning the current estimation process to an integrated framework, built on an open source, computationally efficient, publicly accessible, and clearly documented computational platform
  • Revising the socioeconomic projections of population growth, economic activity, and emissions to better reflect key uncertainties
  • Adopting an updated climate model that passes well-defined performance tests of its representation of current climate science
  • Updating the climate damage functions that translate climate impacts into monetary values to reflect the current state of the peer-reviewed literature
  • Incorporating a discounting procedure that integrates socioeconomic projections and explicitly recognizes the uncertainty surrounding discount rates as well as the interrelationship of uncertainty in discounting and economic growth—and, in turn, societal damages from carbon dioxide emissions
  • Convening domestic and international government entities and businesses and conducting educational outreach on using estimates of the social cost of carbon in order to facilitate more informed policymaking worldwide