Social cost of carbon estimates have increased over time

Abstract

Estimates of the social cost of carbon are the yardstick for climate policy targets. However, there is great uncertainty and we do not know how estimates have evolved over time. Here I present a meta-analysis of published estimates showing that the social cost of carbon has increased as knowledge about climate change accumulates. Correcting for inflation and emission year and controlling for the discount rate, kernel density decomposition reveals a non-stationary distribution. In the past 10 years, estimates of the social cost of carbon have increased from US$9 per tCO2 to US$40 per tCO2 for a high discount rate and from US$122 per tCO2 to US$525 per tCO2 for a low discount rate. This trend is statistically significant if sensitivity analyses are discounted and paper quality weighted. Actual carbon prices are below its estimated value almost everywhere and should therefore go up.

This is a preview of subscription content, access via your institution

Access options

Access through your institution


Change institution

Buy or subscribe

Rent or buy this article

Get just this article for as long as you need it

$39.95

Learn more

Prices may be subject to local taxes which are calculated during checkout

Fig. 1: Average social cost of carbon by publication year.
Fig. 2: Histogram of the social cost of carbon.

Data availability

All data can be found in GitHub.Source data are provided with this paper.

Code availability

All code can be found in GitHub.

References

  1. Nordhaus, W. D. How fast should we graze the global commons? Am. Econ. Rev. 72, 242–246 (1982).


    Google Scholar     

  2. Pigou, A. C. The Economics of Welfare (Macmillan, 1920).

  3. Bator, F. M. The anatomy of market failure. Q. J. Econ. 72, 351–379 (1958).

    Article 

    Google Scholar     

  4. Pareto, V. Manuale di Economia Politica con Una Introduzione Alla Scienza Sociale (Società Editrice Libraria, 1906).

  5. Kaufman, N., Barron, A. R., Krawczyk, W., Marsters, P. & McJeon, H. A near-term to net zero alternative to the social cost of carbon for setting carbon prices. Nat. Clim. Change 10, 1010–1014 (2020).

    Article 
    CAS 

    Google Scholar     

  6. Stern, N. H. & Stiglitz, J. E. The Social Cost of Carbon, Risk, Distribution, Market Failures: An Alternative Approach Working Paper 28472 (National Bureau of Economic Research, 2021).

  7. Rennert, K. et al. Comprehensive evidence implies a higher social cost of CO2. Nature 610, 687–692 (2022).

    Article 
    CAS 

    Google Scholar     

  8. Dietz, S. & Venmans, F. Cumulative carbon emissions and economic policy: in search of general principles. J. Environ. Econ. Manage. 96, 108–129 (2019).

    Article 

    Google Scholar     

  9. NDC Synthesis Report (UNFCCC, 2021).

  10. Biden, J. R. Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis (The White House, 2021).

  11. Report on the Social Cost of Greenhouse Gases: Estimates Incorporating Recent Scientific Advances (EPA, 2022); https://www.epa.gov/system/files/documents/2022-11/epa_scghg_report_draft_0.pdf

  12. Taconet, N., Guivarch, C. & Pottier, A. Social cost of carbon under stochastic tipping points. Environ. Resour. Econ. 78, 709–737 (2021).

    Article 

    Google Scholar     

  13. van der Ploeg, F. & Withagen, C. Growth, renewables, and the optimal carbon tax. Int. Econ. Rev. 55, 283–311 (2014).

    Article 

    Google Scholar     

  14. Anthoff, D. & Tol, R. S. J. The uncertainty about the social cost of carbon: a decomposition analysis using FUND. Clim. Change 117, 515–530 (2013).

    Article 

    Google Scholar     

  15. Diaz, D. & Moore, F. Quantifying the economic risks of climate change. Nat. Clim. Change 7, 774–782 (2017).

    Article 

    Google Scholar     

  16. Nordhaus, W. D. Evolution of modeling of the economics of global warming: changes in the DICE model, 1992–2017. Clim. Change 148, 623–640 (2018).

    Article 

    Google Scholar     

  17. Hänsel, M. C. et al. Climate economics support for the UN climate targets. Nat. Clim. Change 10, 781–789 (2020).

    Article 

    Google Scholar     

  18. Golosov, M., Hassler, J., Krusell, P. & Tsyvinski, A. Optimal taxes on fossil fuel in general equilibrium. Econometrica 82, 41–88 (2014).

    Article 

    Google Scholar     

  19. van den Bremer, T. S. & van der Ploeg, F. The risk-adjusted carbon price. Am. Econ. Rev. 111, 2782–2810 (2021).

    Article 

    Google Scholar     

  20. Havranek, T., Irsova, Z., Janda, K. & Zilberman, D. Selective reporting and the social cost of carbon. Energy Econ. 51, 394–406 (2015).

    Article 

    Google Scholar     

  21. Wang, P., Deng, X., Zhou, H. & Yu, S. Estimates of the social cost of carbon: a review based on meta-analysis. J. Clean. Prod. 209, 1494–1507 (2019).

    Article 

    Google Scholar     

  22. Tol, R. S. J. The marginal costs of greenhouse gas emissions. Energy J. 20, 61–81 (1999).

    Article 

    Google Scholar     

  23. Roe, G. H. & Baker, M. B. Why is climate sensitivity so unpredictable? Science 318, 629–632 (2007).

    Article 
    CAS 

    Google Scholar     

  24. Nordhaus, W. D. An optimal transition path for controlling greenhouse gases. Science 258, 1315–1319 (1992).

    Article 
    CAS 

    Google Scholar     

  25. Anthoff, D., Tol, R. S. J. & Yohe, G. W. Risk aversion, time preference, and the social cost of carbon. Environ. Res. Lett. 4, 024002 (2009).

    Article 

    Google Scholar     

  26. Weitzman, M. L. On modeling and interpreting the economics of catastrophic climate change. Rev. Econ. Stat. 91, 1–19 (2009).

    Article 

    Google Scholar     

  27. Takezawa, K. Introduction to Nonparametric Regression (John Wiley and Sons, 2005).

  28. Tol, R. S. J. The economic impacts of climate change. Rev. Environ. Econ. Policy 12, 4–25 (2018).

    Article 

    Google Scholar     

  29. Altman, N. An introduction to kernel and nearest-neighbor nonparametric regression. Am. Stat. 46, 175–185 (1992).


    Google Scholar     

  30. Yu, K. & Jones, M. Local linear quantile regression. J. Am. Stat. Assoc. 93, 228–237 (1998).

    Article 

    Google Scholar     

  31. Pearce, D. W. et al. in Climate Change 1995: Economic and Social Dimensions (eds Bruce, J. P. et al.) 179–224 (IPCC, Cambridge Univ. Press, 1996).

  32. Smith, J. B. et al. in Climate Change 2001: Impacts, Adaptation, and Vulnerability (eds McCarthy, J. J. et al.) 913–967 (Cambridge Univ. Press, 2001).

  33. Stern, N. H. et al. Stern Review: The Economics of Climate Change (HM Treasury, 2006).

  34. Interagency Working Group on the Social Cost of Carbon. Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (United States Government, 2013).

  35. Nordhaus, W. D. Climate change: the ultimate challenge for economics. Am. Econ. Rev. 109, 1991–2014 (2019).

    Article 

    Google Scholar     

  36. Quetelet, A. Lettres à S. A. R. le Duc Régnant de Saxe-Cobourget Gotha, sur la théorie des probabilités, appliquée aux sciences morales et politiques. (Hayez, 1846).

  37. Pearson, K. On the criterion that a given system of deviations from the probable in the case of a correlated system of variables is such that it can be reasonably supposed to have arisen from random sampling. Lond. Edinb. Dubl. Phil. Mag. J. Sci. 50, 157–175 (1900).

    Article 

    Google Scholar     

  38. Andrews, I. & Kasy, M. Identification of and correction for publication bias. Am. Econ. Rev. 109, 2766–2794 (2019).

    Article 

    Google Scholar     

  39. Fisman, R., Jakiela, P., Kariv, S. & Markovits, D. The distributional preferences of an elite. Science 349, aab0096 (2015).

    Article 

    Google Scholar     

  40. Drupp, M. A., Freeman, M. C., Groom, B. & Nesje, F. Discounting disentangled. Am. Econ. J. Econ. Policy 10, 109–134 (2018).

    Article 

    Google Scholar     

  41. Tol, R. S. J. A meta-analysis of the total economic impact of climate change. Preprint at arXiv https://doi.org/10.48550/arXiv.2207.12199 (2022).

  42. van den Bergh, J. C. J. M. & Botzen, W. J. W. A lower bound to the social cost of CO2 emissions. Nat. Clim. Change 4, 253–258 (2014).

    Article 

    Google Scholar     

  43. Base the social cost of carbon on the science. Nature 541, 260 (2017).

  44. Wagner, G. Recalculate the social cost of carbon. Nat. Clim. Change 11, 293–294 (2021).

    Article 

    Google Scholar     

  45. Burke, M. et al. Opportunities for advances in climate change economics. Science 352, 292–293 (2016).

    Article 
    CAS 

    Google Scholar     

  46. Marten, A. L. et al. Improving the assessment and valuation of climate change impacts for policy and regulatory analysis. Clim. Change 117, 433–438 (2013).

    Article 

    Google Scholar     

  47. Valuing Climate Damages. Updating Estimation of the Social Cost of Carbon Dioxide (National Academies of Sciences, Engineering, and Medicine, 2017).

  48. Wagner, G. et al. Eight priorities for calculating the social cost of carbon. Nature 590, 548–550 (2021).

    Article 
    CAS 

    Google Scholar     

  49. Carbon Pricing Dashboard (The World Bank, 2021).

  50. ICAP Allowance Price Explorer (International Carbon Action Partnership, 2021).

  51. Jones, M. C. & Signorini, D. F. A comparison of higher-order bias kernel density estimators. J. Am. Stat. Assoc. 92, 1063–1073 (1997).

    Article 

    Google Scholar     

  52. Quetelet, A. Sur quelques propriétés curieuses que présentent les résultats d’une serie d’observations, faites dans la vue de déterminer une constante, lorsque les chances de rencontrer des écarts en plus et en moins sont égales et indépendantés les unes des autres. Bull. Cl. Sci. Acad. R. Belg. 19, 303–317 (1852).


    Google Scholar     

  53. Pearson, K. III. Contributions to the mathematical theory of evolution. Phil. Trans. R. Soc. Lond. A 185, 71–110 (1894).

    Article 

    Google Scholar     

  54. Laplace, P.-S. Essai Philosophique sur les Probabilités, 1st edn (Ve Courcier, 1814).

  55. Makov, U. E. in International Encyclopedia of the Social and Behavioral Sciences (eds Smelser, N. J. & Baltes, P. B.) 9910–9915 (Pergamon, 2001).

  56. McLachlan, G. & Peel, D. Finite Mixture Models (John Wiley and Sons, 2001).

Download references

Acknowledgements

P. Dolton, E. Lavoie and J. Stock provided constructive comments on earlier versions that made this paper much better. A number of authors gracefully shared their estimates of the social cost of carbon. No external funding supported this research.

Author information

Authors and Affiliations

  1. Department of Economics, University of Sussex, Falmer, UK

    Richard S. J. Tol

  2. Institute for Environmental Studies, Vrije Universiteit, Amsterdam, the Netherlands

    Richard S. J. Tol

  3. Department of Spatial Economics, Vrije Universiteit, Amsterdam, the Netherlands

    Richard S. J. Tol

  4. Tinbergen Institute, Amsterdam, The Netherlands

    Richard S. J. Tol

  5. CESifo, Munich, Germany

    Richard S. J. Tol

  6. Payne Institute for Public Policy, Colorado School of Mines, Golden, CO, USA

    Richard S. J. Tol

  7. College of Business, Abu Dhabi University, Abu Dhabi, UAE

    Richard S. J. Tol

Authors

  1. Richard S. J. Tol
    View author publications

    You can also search for this author in
    PubMed Google Scholar

Contributions

This is a single-authored paper. There are no ghostwriters and no research assistants.

Corresponding author

Correspondence to
Richard S. J. Tol.

Ethics declarations

Competing interests

The author declares no competing interests.

Peer review

Peer review information

Nature Climate Change thanks the anonymous reviewers for their contribution to the peer review of this work.

Additional information

Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Extended data

Extended Data Fig. 1 Year of emission and year of nominal dollar by year of publication.

Estimates are weighted such that every published paper counts equally.

Source data

Extended Data Fig. 2 Composite kernel density of the growth rate of the social cost of carbon and its composition by discount rate.

Source data

Extended Data Fig. 3 Empirical median and interquartile range of the social cost of carbon for six subperiods and the whole sample, and for four alternative weights.

Sample sizes and further statistics are in Supplementary Tables S1 and S2.

Source data

Extended Data Fig. 4 The pure rate of time preference used to estimate the social cost of carbon by publication period.

Estimates are weighted such that every published paper counts equally.

Source data

Extended Data Fig. 5 Year fixed effects from a regression of the social cost of carbon on the pure rate of time preference, using quality weights.

The base year is 1982; dots denoted the estimated coefficients; error bars denote the 67% confidence interval.

Source data

Extended Data Fig. 6 Composite kernel density of the social cost of carbon and its composition by the pure rate of time preference.

Source data

Supplementary information

Supplementary Information

Full list of references, Supplementary Tables 1–18, Supplementary Figs. 1–16 and a description of the assumptions and methods behind these tables and figures.

Source data

Source Data Fig. 1

Raw data, tables and figures; at https://github.com/rtol/metascc.

Source Data Fig. 2

Raw data, tables and figures (top); bespoke statistical software (bottom); at https://github.com/rtol/metascc.

Source Data Extended Data Fig. 1

Raw data, tables and figures.

Source Data Extended Data Fig. 2

Bespoke statistical software, at https://github.com/rtol/metascc.

Source Data Extended Data Fig. 3

Raw data, tables and figures.

Source Data Extended Data Fig. 4

Raw data, tables and figures.

Source Data Extended Data Fig. 5

Regression results from socialcostcarbon.do and socialcostcarbon.dta; at https://github.com/rtol/metascc.

Source Data Extended Data Fig. 6

Bespoke statistical software, at https://github.com/rtol/metascc.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Tol, R.S.J. Social cost of carbon estimates have increased over time.
Nat. Clim. Chang. (2023). https://doi.org/10.1038/s41558-023-01680-x

Download citation

  • Received: 03 August 2022

  • Accepted: 23 April 2023

  • Published: 15 May 2023

  • DOI: https://doi.org/10.1038/s41558-023-01680-x

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative