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The economic damage or “social cost” of a ton of carbon dioxide emissions could actually be six times higher than the value the United States now uses to guide current energy regulations, and possibly future mitigation policies.

These damages are expected to take various forms, including decreased agricultural yields, harm to human health, and lower worker productivity, all related to climate change.

“We estimate that the social cost of carbon is not $37 per ton, as previously estimated, but $220 per ton,” says study coauthor Frances Moore, a PhD candidate in the Emmett Interdisciplinary Program in Environment and Resources in Stanford University’s School of Earth Sciences.

Based on the findings, countries may want to increase their efforts to curb greenhouse gas emissions, says study coauthor Delavane Diaz, a PhD candidate in the department of management science and engineering at Stanford’s School of Engineering.

“If the social cost of carbon is higher, many more mitigation measures will pass a cost-benefit analysis,” Diaz says. “Because carbon emissions are so harmful to society, even costly means of reducing emissions would be worthwhile.”

A popular way to calculate cost

For their study in Nature Climate Change, Moore and Diaz modified a well-known computer model for calculating the economic impacts of climate change, known as an integrated assessment model, or IAM. Their alternative formulation incorporated recent empirical findings suggesting that climate change could substantially slow economic growth rates, particularly in poor countries.

IAMs are important policy tools. Because they include both the costs and benefits of reducing emissions, they can inform governments about the optimal level of investment in emission reduction. The US Environmental Protection Agency, for example, uses the $37 average value from three IAMs to evaluate greenhouse gas regulations. Canada, Mexico, the United Kingdom, France, Germany, and Norway have also used IAMs to analyze climate and energy policy proposals.

While useful, IAMs have to make numerous simplifying assumptions. One limitation, for example, is that they fail to account for how the damages associated with climate change might persist through time.

“For 20 years now, the models have assumed that climate change can’t affect the basic growth rate of the economy,” Moore says. “But a number of new studies suggest this may not be true. If climate change affects not only a country’s economic output but also its growth, then that has a permanent effect that accumulates over time, leading to a much higher social cost of carbon.”

2 degrees Celsius

In the new study, Moore and Diaz took a widely used IAM, called the Dynamic Integrated Climate-Economy (DICE) model, and modified it in three ways: they allowed climate change to affect the growth rate of the economy; they accounted for adaptation to climate change; and they divided the model into two regions to represent high- and low-income countries.

“There have been many studies that suggest rich and poor countries will fare very differently when dealing with future climate change effects, and we wanted to explore that,” Diaz says. Poor countries may be more vulnerable to changes in rainfall and rising sea levels.

One major finding of the new study is that the damages associated with reductions in economic growth rates justify very rapid and very early mitigation that is sufficient to limit the rise of global temperature to 2 degrees Celsius above pre-industrial levels. This is the target that some experts say is necessary to avert the worst effects of global warming.

“This effect is not included in the standard IAMs,” Moore says, “so until now it’s been very difficult to justify aggressive and potentially expensive mitigation measures because the damages just aren’t large enough.”

Poor countries

The pair’s IAM also shows that developing countries may suffer the most from climate change effects.

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“If poor countries become less vulnerable to climate change as they become richer, then delaying some emissions reductions until they are more fully developed may in fact be the best policy,” Diaz says. “Our model shows that this is a major uncertainty in mitigation policy, and one not explored much in previous work.”

They note two important caveats to their work, however. First, the DICE model’s representation of mitigation is limited. It doesn’t take into account, for example, the fact that clean technologies take time to develop and deploy.

Second, while it explores the effects of temperature on economic growth, the model does not factor in the potential for mitigation efforts to also impact growth.

“For these two reasons, the rapid, near-term mitigation level found in our study may not necessarily be economically optimal,” Diaz says. “But this does not change the overall result that if temperature affects economic growth rates, society could face much larger climate damages than previously thought, and this would justify more stringent mitigation policy.”

Source: Stanford University