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Climate Impacts on Economic Growth as Drivers of Uncertainty in the Social Cost of Carbon

29 Pages Posted: 19 Aug 2013 Last revised: 28 Apr 2015

Elisabeth J. Moyer

University of Chicago - Department of the Geophysical Sciences; University of Chicago - Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Mark D. Woolley

Logistics Management Institute (LMI)

Michael Glotter

University of Chicago - Department of the Geophysical Sciences; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

David A. Weisbach

University of Chicago - Law School; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

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Date Written: April 27, 2015

Abstract

One of the central ways that the costs of global warming are incorporated into U.S. law is in cost-benefit analysis of federal regulations. In 2010, to standardize analyses, an Interagency Working Group (IAWG) established a central estimate of the social cost of carbon (SCC) of $21/tCO2 drawn from three commonly-used models of climate change and the global economy. These models produced a relatively narrow distribution of SCC values, consistent with previous studies. We use one of the IAWG models, DICE, to explore which assumptions produce this apparent robustness. SCC values are constrained by a shared feature of model behavior: though climate damages become large as a fraction of economic output, they do not significantly alter economic trajectories. This persistent growth is inconsistent with the widely held belief that climate change may have strongly detrimental effects to human society. The discrepancy suggests that the models may not capture the full range of possible consequences of climate change. We examine one possibility untested by any previous study, that climate change may directly affect productivity, and find that even a modest impact of this type increases SCC estimates by many orders of magnitude. Our results imply that the SCC is far more uncertain than shown in previous modeling exercises and highly sensitive to assumptions. Understanding the societal impact of climate change requires understanding not only the magnitude of losses at any given time but also how those losses may affect future economic growth.

Suggested Citation

Moyer, Elisabeth J. and Woolley, Mark D. and Glotter, Michael and Weisbach, David A., Climate Impacts on Economic Growth as Drivers of Uncertainty in the Social Cost of Carbon (April 27, 2015). Journal of Legal Studies, Vol. 43, No. 2, 2014, pp. 401-425; University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 652. Available at SSRN: https://ssrn.com/abstract=2312723 or http://dx.doi.org/10.2139/ssrn.2312723

Elisabeth J. Moyer

University of Chicago - Department of the Geophysical Sciences ( email )

5734 S. Ellis Ave.
Chicago, IL 60637
United States

University of Chicago - Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Mark D. Woolley

Logistics Management Institute (LMI) ( email )

2000 Corporate Ridge
McLean, VA 22102
United States

Michael Glotter

University of Chicago - Department of the Geophysical Sciences ( email )

5734 South Ellis Avenue
Chicago, IL 60637
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

David Weisbach (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-3342 (Phone)
773-702-0730 (Fax)

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

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