Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis) (August 26, 2016) (35 pages, 618 kb) Addendum to Technical Support Document for Social Cost of Carbon: Application of the Methodology to Estimate the Social Cost of Methane and the Social Cost of Nitrous Oxide (August 26, 2016) (20 pages, 578 kb) Publication of the high-profile Stern Review (2006) in the United Kingdom highlighted the uncertainty surrounding estimates of the social cost of carbon: this study found an SCC exceeding $100/t CO2, while other prominent economic researchers suggest an SCC ten times lower (e.g., Nordhaus 2011). As a result of these advantages, a number of governments, including Canada’s federal government, have elected to use the social cost of carbon in regulatory policy analysis. The federal carbon pricing system will apply a $20 per tonne carbon price in 2019 – well below the true cost of climate change. Figure 2 shows the results of a number of models that have been used to estimate the marginal cost of greenhouse gas abatement in Canada. Deuxièmement, le CSC est une mesure globale des bénéfices, alors que la pratique standard en ACB est de n’inclure que les coûts et les bénéfices intérieurs; tenir compte de coûts venant de l’extérieur du Canada et selon une seule dimension (les dommages) risque de réduire l’efficacité économique et d’entraîner de la confusion chez ceux qui consultent les ACB ainsi réalisées. The social cost of carbon is an estimate of the monetized damages caused by a one-ton increase in greenhouse gas emissions in a given year. Without valuing carbon dioxide emission damages, the regulations would not be economically justified. The adoption of an SCC-based approach to policy appraisal sits uncomfortably with a commitment to hitting a particular quantitative target on emissions. An alternative and target-focused approach to taking account of carbon in appraising and evaluating public policies is based on estimates of the marginal abatement cost of carbon required to hit a given target. However, a large portion of the projected benefits of the regulation are due to savings in carbon dioxide emissions, which are included in the cost-benefit analysis using the SCC concept. The dashed line maps Canada’s current international commitment to a carbon price. Interestingly in its “Carbon Valuation in UK Policy Appraisal: A Revised Approach,” the Department of Energy and Climate Change (DECC) in the United Kingdom has recently jettisoned the SCC approach in favour of this target-consistent approach (DECC 2009). The stated reasons for the change in practice are twofold. Given information about magnitude and distribution of costs and benefits, respondents were asked whether or not they thought the given policy would pass a Government of Canada cost-benefit test. There are a variety of channels through which Canada could, to the extent that it wishes to, deliver benefits to non-residents— through favourable terms of trade, market access, subsidized higher education for overseas students, aid, etc. The government now has a specific number it can use to make rule changes, taking into account economic damages as a result of climate change. The following Questions and Answers provide an overview of the analyses of the environmental and economic impacts of the Pan-Canadian Framework undertaken by the Federal government with input from the provinces and territories. Further “using standard assumptions about discounting and aggregation, the marginal damage cost of carbon dioxide emissions are unlikely to exceed US$50/tC (US$14/t CO2) and are probably much smaller” (Tol 2005). The figure was produced using coefficients from the estimated model, setting global benefits equal to global costs, and varying the proportion of the benefits accruing to Canadian residents. Accounting for costs borne outside of Canada and along only one dimension (carbon damage) risks reducing economic efficiency and confusing the users of CBA studies. Second, it is likely that current estimates of the SCC are biased downwards for a few reasons. See also Deitz (2007). (2012). It means that the price of a good (in this case, energy and hydrocarbon-based products) must reflect all the costs that its production and use impose on society. Equally, if such importation generates pecuniary benefits abroad (through, for example, enhanced profits to foreign-based firms), those will also be excluded. Social cost of co2 emission US, China and India: Top carbon emitters to face the biggest economic losses. According to economists, imposing a price on carbon is the most effective way of curbing emissions. Although useful in an optimal policy context, a world-level approach obscures the heterogeneous geography of climate damage and vast differences in country-level contributions to the global SCC, as well as climate and socio-economic uncertainties, which are … SOCIAL COST OF CARBON Background EPA and other federal agencies use estimates of the social cost of carbon (SC-CO2) to value the climate impacts of rulemakings. Each tonne of carbon dioxide consists of about 0.27 tonnes of carbon and 0.73 tonnes of oxygen. Putting a price on carbon pollution provides economic spinoffs, because it encourages Canadians and businesses to innovate and invest in clean technologies and sustainable growth opportunities. The systems that are already in place in certain provinces, along with the new federal system, will lower GHG emissions by 50 to 60 Mt by the year 2030. First, calculations of the social cost of carbon require the use of highly parameterized integrated assessment models, which contain a large amount of uncertainty, and which rule out by assumption some of the impacts of climate change that are of concern. CDP’s work in this area is key to the private and public sector incorporating the cost of carbon emissions into business strategy and policy. As a result, the evaluation criterion for the policy becomes: First, there is probably no other area where CBA analysis in government is conducted on such a basis.

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