Abstract
This paper reviews applications of benefit-cost analysis (BCA) in climate policy assessment at the US national and global scales. Two different but related major application types are addressed. First there are global-scale analyses that focus on calculating optimal global carbon emissions trajectories and carbon prices that maximize global welfare. The second application is the use of the same tools to compute the social cost of carbon (SCC) for use in US regulatory processes. The SCC is defined as the climate damages attributable to an increase of one metric ton of carbon dioxide emissions above a baseline emissions trajectory that assumes no new climate policies. The paper describes the three main quantitative models that have been used in the optimal carbon policy and SCC calculations and then summarizes the range of results that have been produced using them. The results span an extremely broad range (up to an order of magnitude) across modeling platforms as well as across the plausible ranges of input assumptions to a single model. This broad range of results sets the stage for a discussion of the five key challenges that face BCA practitioners participating in the national and global climate change policy analysis arenas: (1) including the possibility of catastrophic outcomes; (2) factoring in equity and income distribution considerations; (3) addressing intertemporal discounting and intergenerational equity; (4) projecting baseline demographics, technological change, and policies inside and outside the energy sector; and (5) characterizing the full set of uncertainties to be dealt with and designing a decision-making process that updates and adapts new scientific and economic information into that process in a timely and productive manner. The paper closes by describing how the BCA models have been useful in climate policy discussions to date despite the uncertainties that pervade the results that have been produced.
Acknowledgments
The author thanks David Anthoff, Chris Hope, Jia Li, William Nordhaus, Richard Richels, Steve Rose, Fran Sussman, James Sweeney, Richard Tol, Delavane Turner and two excellent anonymous reviewers for suggestions on this paper.
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