Persistent macroeconomic damages raise social cost of carbon

Abstract

The social cost of carbon (SCC) is a central tool for climate policy-making. Estimates of the SCC depend crucially on their representation of climate damages. Recent developments in climate econometrics have increased the level of spatial detail, constrained the persistence, and widened the scope of climatic drivers of impacts on macroeconomic growth, but their implications for the SCC remain unexplored. Here we integrate a reduced form representation of such empirical damages in the state-of-the-art Integrated Assessment Model GIVE. At a near-term discount rate of 2%, damages imply a SCC of $2520 with a likely range of $1330-4250 based on uncertainty in the econometric, climate and integrated assessment models, an order of magnitude greater than recent sector-specific calibrations. Accounting for the variability of temperature and the variability and extremes of precipitation increases estimates of the SCC by over 80% compared to damages from average temperature alone. Constraining the persistence of impacts on growth alters the SCC by orders of magnitude, increasing over forty-fold compared to empirical specifications which assume no persistence and decreasing four-fold compared to those which assume infinite persistence. Exploring the potential of adaptation to reduce damages, we find that halving economic vulnerability to impacts within the next 23 years would be necessary to bring the SCC below 1000$.