Integrated Assessment Models and the Social Cost of Carbon: A Review and Assessment of U.S. Experience

This article considers the role of integrated assessment models (IAMs) in estimating the social cost of carbon (SCC) for U.S. regulatory purposes. Our perspective is rooted in the needs of U.S. institutions responsible for designing and implementing climate policy, specifically regulatory agencies within the executive branch and Congress should it choose to take up climate legislation. We argue that policymakers need a numerical value for the SCC for policy evaluation and implementation and that producing a credible numerical value requires sophisticated computer models that incorporate climate and economic considerations, that is, IAMs. We also argue that whatever the true value of the SCC, it is not zero, although there is considerable uncertainty surrounding the current state of scientific knowledge about the costs of climate change. We conclude that the evolving nature of the science and the ultimate goal of informing first-best policy suggests that the official SCC used for regulatory analysis by the U.S. government should not be thought of as a single number or even a range of numbers; rather it should be thought of more broadly as a process that yields updated estimates of those numbers and ranges. The ultimate goal of the process is scientific credibility, public acceptance, and political and legal viability.