STEP 2: CALCULATING THE SOCIAL COST OF CARBON Over 300 studies attempt to put a price on carbon, valuing the impacts of climate change on agriculture, forestry, water resources, coastal zones, energy consumption, air quality, tropical and extratropical storms, and human health. Estimates across studies vary from below-zero to four-figure estimates, mainly due to four factors: Emissions scenarios: In order to derive the social cost of carbon, assumptions need to be made on future emissions, the extent and pattern of warming, and other possible impacts of climate change, so as to translate climate change to economic consequences. Tol identified three methodological approaches undertaken by the literature – expert review, enumerative method, and statistical method – and conducted a meta-analysis of the results.176 Studies are in broad agreements on the fact that the negative effects of climate change outweigh the short-run benefits of inaction. Discount rate: The discount rate used to calculate the present value of future economic damages resulting from carbon emitted today can be the most significant source of variation in estimates of the social cost of carbon. Higher discount rates result in lower present day values for the future damage costs of climate change. Variations in discount rates can be due to differences in assumptions about factors such as the rate of pure time preference, the growth rate of per capita consumption and the elasticity of marginal utility of consumption. Equity weighting: A global SCC can take into account variations in the timings and locations at which the costs of climate change impacts will be internalized, which may differ from the locations where the GHGs are emitted. Some studies including Stern and Tol take account of equity weightings – corrected for differences in the valuations of impacts in poor countries.176,177 Uncertainties: Variations in valuations are influenced by uncertainties surrounding estimates of climate change damages and related costs. However climate change studies since 1995 tend to take account of net gains as well as losses due to climate change.The mean estimate of the social cost of carbon, as well as the standard deviation, have declined since 2001, suggesting decreasing uncertainty in the understanding of climate change impacts. Further, GDP loss estimates in relation to climate change have declined over time, as later studies focus on the positive and negative effects of climate change and take adaptation into account. A social cost of 113 US$ 2012 per metric tonne of CO2e was used to value GHG emissions, which is the value identified in the UK Government’s Stern report as the central, business-as-usual scenario value, adjusted for inflation to 2012 prices using a global weighted average consumer price index (CPI).177
AIR POLLUTANTS EMISSIONS The main air pollutants include sulphur dioxide (SO2), nitrogen oxides (NOx), particulate matter (PM), ammonia (NH3), carbon monoxide (CO) and volatile organic compounds (VOCs). Each pollutant impacts human health and/or crop and forest yields in a unique way. The economic damage caused per unit of pollutant depends on the specific location, and is driven by population and crop and forest density. Each pollutant is associated with different but overlapping types of external costs. Some effects are caused directly by the primary pollutant emitted (e.g. health impacts of particulates) and some are caused by secondary pollutants formed in the atmosphere from pollutants that acts as precursors (e.g. sulphur dioxide forming sulphuric acid as well as sulphate compounds which contribute to smog). As each pollutant has a unique set of effects, each pollutant is valued using an individual methodology (although there is overlap between methodologies).
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