Country-level social cost of carbon
Kate Ricke, Assistant Professor
School of Global Policy & Strategy
Scripps Institution of Oceanography
UC San Diego

March 9, 2021

Country-level social cost of carbon

CSCC [USD/tCO2]−20 to −10−10 to −1−1 to 00 to 1
1 to 1010 to 20
20 to 50
50 to 100
MissingWhat is the "social cost of carbon"?

The social cost of carbon is the economic cost of a small
increase in carbon dioxide emissions today.
It's the net present value of the additional damages
associated with an incremental pulse release of CO2 on topof a baseline (business-as-usual) climate change pathway.
It represents the marginal impacts of climate change.

The social planner

Optimal climate policy would aim to achieve the equilibrium
level of warming where global marginal impacts equal
global marginal costs.

Standard estimates: IAWG

Interagency Working Group (2016)

The strategic incentives
Domestic costs

Domestic impacts

The global optimum might not represent a stable outcome:rather, a Nash equilibrium which internalizes only domestic
damages is a more likely occurrenceWhy calculate SCC at the country level?
The strategic game: thanks to the contribution of non-cooperative gametheory as brought to the climate field by economists...
• we know the global optimum might not represent a stable outcome,and that rather a Nash equilibrium which internalizes only domestic
damages is a more likely occurrence.

• Complementing the standard normative assessment of the SCC

based on global values with disaggregated estimates can in our view
inform the all important strategic dimension of the climate game.

• given the current nationalistic tone in world politics, it is important toexamine costs at the level most salient to decision makers

Why calculate SCC at the country level?

• The social planner: higher spatial resolution of climate

damage and benefit estimates impacts estimates of net
global climate damage, i.e., disaggregating and reaggregating can produce more accurate results• The climate policy optimist: what constraints must weapply for the Nash equilibrium to approach the global
optimum?

Calculating SCC: Four modules
Socioeconomic

Earth system

Damages

Discounting

How wouldthe economy
change withno climatechange?

How does the
Earth system
respond toemissions ofcarbon
dioxide?

How does theeconomy
respond tochanges in the
Earth system?

How should
we value
losses today
vs. in 100years?

(e.g.,economic
losses caused
by warming)(socialdiscounting
and netpresent value)(e.g.,population,technology,governance)(e.g.,
carbon cycle,temperature,precipitation)

Socio-economic module

If there was no climatechange, how would theeconomy change?

Socio-economic module

If there was no climatechange, how would theeconomy change?

Socio-economic module

If there was no climatechange, how would theeconomy change?

Socio-economic module

If there was no climatechange, how would theeconomy change?

Socio-economic module

Socio-economic module

Business-as-usualSocio-economic module
Shared Socioeconomic Pathways (SSPs)

O'Neill et al (2014)

Earth system module

CO2
CO2

CO2
CO2

CO2

CO2
CO2CO2CO2 CO2
CO2
CO2emissionscarbon cycle

CO2climate

CO2

Earth system module
Representative
Concentration Pathways(RCPs)

Moss et al (2010)

emissions

Carbon cycle modelintercomparison

Joos et al (2013)carbon cycle

Climate modelintercomparison (CMIP5)e.g., Cadeira & Myrvold(2013)

climateDamages module

Empirical,
macroeconomic
damage functions

Damages module
Empirical: based on 50years of observations of
how economies have
responded to interannual
variability
Macroeconomic: examining
the response of the whole
economy to climate

Damages module

Empirical,
macroeconomic
damage functions

Country 1

Country 2

Damages module
Sensitivity of a country's
economy to climatologicalfactors changes, while nonclimatic factors are fixedCountry 1

Country 2

Damages module
Empirical, macroeconomic damage functionsBurke et al (2015)

Dell et al (2012)

Footnote: Unresolved questions about
projected impacts of climate change

Burke, Hsiang & Miguel (2015)

Newell, Prest & Sexton (2018)

Damages module
Empirical, macroeconomic damage functions

Burke et al (2015)(Four model specifications:short-run & long-run
pooled & rich-poor)

Dell et al (2012)

Discounting module
Net present value: The value today of a decision's
consequences now and into the future

Source: mathisfun.com

Discounting module

damages

discounteddamages

aggregate
discounted damages

Discounting module
Conventional discounting:discount rate is fixed==

Source: mathisfun.com

Discounting module
Ramsey rule discounting: discountrate depends on growth*≠≠* will vary by country, by baseline and over time
Source: mathisfun.com

Calculating SCC: Four modules
Socioeconomic

Earth system

Damages

Discounting

Define how
the economy
will change inthe futureunderbusiness-asusual scenarios

Calculate how
countries will
warm underbusiness-asusual and witha smalladditionalemission ofcarbon dioxidetoday

Calculate theeconomic
losses (orgains)associatedwith thosescenarios andthe pulse ofCO2Compress
those losses
and gains intoa net present
value using
discountingCalculating SCC: Four modules
Socioeconomic

Earth system

Damages

Discounting

r=𝛅+𝛈gCountry-level social cost of carbon(CSCC)

CSCC [USD/tCO2]−20 to −10−10 to −1−1 to 00 to 1
1 to 1010 to 20
20 to 50
50 to 100MissingGlobal social cost of carbon
Interagency Working Group (2013)
Pindyck expert elicitation (2016)
RCP4.5
Sustainability(SSP1)●●

RCP6.0
RCP8.5
RCP4.5

Middle ofthe road(SSP2)●●

RCP6.0
RCP8.5
RCP4.5

Regional
Rivalry(SSP3)

RCP6.0●●

RCP8.5

Damage function
specification●

BHM SR●BHM SR RP
BHM LR
BHM LR RP

RCP4.5Inequality(SSP4)●●

RCP6.0
RCP8.5
RCP4.5

Fossil−fuelDevelopment(SSP5)

RCP6.0●0●

RCP8.5
1000

2000

3000

Global Social Cost of Carbon [USD/tCO2] (66% Confidence Interval)

4000

DJO RPCountry-level social cost of carbon(CSCC)
ab

CSCC [USD/tCO2]−10 to −1−1 to 00 to 1
1 to 1010 to 50
50 to 100
Missing

Damage function
specification

RUS●CAN●DEU●GBR●

BHM LRSWE●

BHM LR RPCHN

●BRA

●

ARE●
●USA●
●

0100200300400

CSCC [USD/tCO2](median)Reference case (SSP2/RCP6/BHM-SR/𝛒=1,𝛈=1.5)

BHM SR●BHM SR RP

SSP/RCPSAU

IND●

Uncertainty analysis●

SSP1/RCP60●

SSP2/RCP60●

SSP3/RCP85●

SSP4/RCP60●

SSP5/RCP85

15

Saudi Arabia

USA

10

1 :4
China

Brazil5Japan

0Russia010

2 :1

Brazil2030

MexicoIndonesia

1:22

Japan
0.RUHD5HS
UK0

Share of global emissions in 2013 (%)

Reference case (SSP2/RCP6/BHM-SR/𝛒=1,𝛈=1.5)4ï

-1:4

SCC/capita($/MtCO2/person)

1:
1

1:2

Share of global social cost of carbon (%)

1:1

India

2:1

4:1

20

6

1-2:

Share of global social cost of carbon (%)

Strategic view

1

Germany-1:2

Canada
2

3

4



ï

Log(GDP($))
78
9

Trump administration
revised SCC down to $1
to $7 per ton of CO2

Implications for policy• Global and country-level SCC are hugely uncertain, but with a

median GSCC of $417/ton CO2, $40/ton is likely much too low• Robust heterogeniety reinforces why collective action has been

so difficult: countries like India benefit less from the status quo(CSCC:emissions > 4) than China (CSCC:emissions < 1/4)

• The three biggest emitters – China, US and India—also

consistently have among the highest country-level SCC:
those that have the most power to do something to reduceclimate damages also have the most incentive to do soThanks

Ricke, K.L., L. Drouet, K. Caldeira and M. Tavoni. "Broadheterogeneity in country-level social cost of carbon." Nature
Climate Change. October 2018. https://doi.org/10.1038/
s41558-018-0282-y
website: https://country-level-scc.github.io/https://country-level-scc.github.io/explorer/