We reexamine estimates of the social cost of carbon (SCC) used by agencies as the price of carbon emissions in cost-benefit analysis, focusing on those by the federal Interagency Working Group on SCC (IWG). We show that the models used by the IWG assume continued economic growth in the face of substantial temperature increases, which suggests that they may not capture the full range of possible consequences of climate change. Using the DICE integrated assessment model, we examine the possibility that climate change may directly affect productivity and find that even a modest impact of this type increases SCC estimates substantially. The SCC appears to be highly uncertain and sensitive to modeling assumptions. Understanding the impact of climate change therefore requires understanding how climate-related harms may affect productivity and economic growth. Furthermore, we suggest that misunderstandings about growth assumptions in the model may underlie the debate surrounding the proper discount rate.

Areas of Focus: Climate Change
Definition
Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
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Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
Climate Science
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Climate Science
EPIC’s interdisciplinary team of researchers is contributing to a cross-cutting body of knowledge on the scientific causes of climate change and its social consequences.
Social Cost of Carbon
Definition
Social Cost of Carbon
The social cost of carbon is an essential tool for incorporating the cost of climate change into policy-making, corporate planning and investment decisionmaking in the United States and around the...