The Precautionary Social Cost of Carbon

Abstract

This paper, published as Chapter 16 in Johnston, Climate Rationality (CUP 2021), explains how the U.S. government has derived its estimates of the Social Cost of Carbon (SCC). The paper shows that the models used to derive those estimates – so-called Integrated Assessment models – are useful in allowing one to trace the impact on future GDP of present day greenhouse gas emissions under alternative assumptions about things such as the cost of greenhouse (GHG) gas abatement and relationship between atmospheric GHG concentration and GDP. But the models do not constitute an economic explanation of the key relationship – between atmospheric GHG concentration and GDP – and their predictions depend entirely upon what is assumed about economic adaptation to changing climate. SCC estimates used by the U.S. government rest on an assumption of very limited ability to adapt to climate, an assumption that is contradicted by abundant empirical evidence. Because they are wrong about adaptation,existing SCC estimates from such models overestimate substantially the economic cost of increasing atmospheric GHG concentration.