Designing policy for climate change requires analyses which integrate the interrelationship between the economy and environment, including: the immense risks and impacts on distribution across and within generations; the many failures, limitations or absences of key markets; and the limitations on government, both in offsetting these failures and distributional impacts.
Much of the standard economic modelling, including Integrated Assessment Models, does not embody key aspects of these essentials.
We identify fundamental flaws in both the descriptive and normative methodologies commonly used to assess climate policy, showing systematic biases, with costs of climate action overestimated and benefits underestimated. We provide an alternative methodology by which the social cost of carbon may be calculated, one which embraces the essential elements we have identified.
The “process-based” versions of these models are mathematical representations of the world, with modules representing the climate, biosphere, energy, and economy … The conundrum posed by climate change is that policymakers need to act immediately to avoid warming decades hence. IAMs help them to envisage the desired future and the impacts of climate policies. For example, researchers might specify an emissions target and then use an IAM to work out what policies and technologies might be the most cost-effective way to hit that target. These models aren’t crystal balls used for predictions; rather, they are a way to inform the policy discourse.
One specific tool — called the “social cost of greenhouse gases” — combines climate science and economics to help Federal agencies and the public understand the benefits of reducing greenhouse gas emissions. The metric is a range of estimates, in dollars, of the long-term damage done by one ton of greenhouse gas emissions.
The use of this metric by the U.S. Government began in the Bush Administration and was later standardized across agencies in the Obama Administration. The Obama Administration created an Interagency Working Group of technical experts across the Federal Government to develop uniform estimates, subject to extensive public comment, in order to ensure that agencies utilized the best available science and economics.
However, the previous Administration disbanded the Interagency Working Group that had developed and refined these estimates and issued revised estimates based on assumptions that did not rely on the best available science or have the benefit of dedicated public comment. It also failed to implement 2017 recommendations from the experts at the National Academies of Sciences, Engineering, and Medicine that the Interagency Working Group had requested to ensure that these estimates continued to be in line with the latest science and economics.
This Administration will follow the science and listen to the experts. In a first-day executive order on Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis, President Biden reconvened the working group of technical experts from across the Federal Government and instructed them to restore the science- and economics-based approach to estimating climate damages.