Climate Risks and Carbon Prices: Revising the Social Cost of Carbon

This research paper critiques the U.S. government's 2010 Social Cost of Carbon (SCC) estimate of $21 per ton, arguing it is dangerously low. By testing alternative assumptions in the DICE model—including higher climate sensitivity, more severe damage functions (based on Weitzman and Hanemann), and a lower discount rate (1.5% vs 3%)—the authors find the SCC could range up to $893 in 2010 and $1,500 by 2050. They conclude that if these higher risks are plausible, the SCC exceeds the cost of maximum feasible abatement ($150-$500/ton), making immediate, large-scale emission reductions the most cost-effective and prudent strategy.

• The U.S. federal government's Interagency Working Group estimated the social cost of carbon (SCC) at $21 per ton of CO2 as of 2010, which the authors describe as a "mere $21" and equivalent to "$0.21 for every gallon of gasoline."
• A re-analysis using the DICE model shows that the SCC could be significantly higher than government estimates, ranging from $28 to $893 in 2010, and potentially reaching $1,500 by 2050 in the worst-case scenario.
• The authors identify four major uncertainties that drive SCC estimates: climate sensitivity (the warming resulting from doubling CO2), the severity of damages at low temperatures, the severity of damages at high temperatures, and the discount rate used to value future costs.
• The document critiques the FUND model as an outlier that is "the most complex and least transparent" of the three models used by the government, noting it projects net global benefits in agriculture that offset other damages and uses dated information on climate dynamics.
• The authors argue that the original DICE damage function underestimates high-temperature risks; while DICE implies half of world GDP is lost only at 18.8°C, Martin Weitzman suggests losses could reach half of world GDP at 6°C and 99 percent at 12°C.
• The choice of discount rate significantly impacts the SCC; the government's 3 percent rate is contrasted with a 1.5 percent rate (approximating the Stern Review), which gives greater importance to future generations and results in higher SCC values.
• The authors find that under many plausible assumptions, the SCC for 2050 exceeds the marginal abatement cost of $150 to $500 per ton required for maximum technically feasible emission reductions.
• When the SCC exceeds the cost of maximum feasible abatement, the authors argue that cost-benefit analysis becomes redundant and should be replaced by a cost-effectiveness analysis of the least-cost strategy to eliminate emissions as rapidly as possible.
• The document suggests that the U.S. should follow the UK's approach by setting a quantitative long-term emissions target and basing the carbon price on the marginal cost of abatement (MAC) rather than the SCC, as the MAC is less uncertain.
• The authors conclude that if either climate damages are higher than DICE assumes or a lower discount rate is used, the SCC justifies a precautionary approach involving immediate, large-scale action to phase out carbon emissions.

APA

Ackerman, F., & Stanton, E. A. (2011). Climate Risks and Carbon Prices: Revising the Social Cost of Carbon. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climate-risks-carbon-prices-2011-full.pdf

Chicago

Ackerman, F., and E. A. Stanton. Climate Risks and Carbon Prices: Revising the Social Cost of Carbon. Stockholm Environment Institute, 2011. https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climate-risks-carbon-prices-2011-full.pdf.

Wikipedia

{{cite report |last1=Ackerman |first1=F. |last2=Stanton |first2=E. A. |title=Climate Risks and Carbon Prices: Revising the Social Cost of Carbon |publisher=Stockholm Environment Institute |date=2011 |url=https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climate-risks-carbon-prices-2011-full.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ackerman2011climate, author = {Ackerman, F. and Stanton, E. A.}, title = {{Climate Risks and Carbon Prices: Revising the Social Cost of Carbon}}, institution = {Stockholm Environment Institute}, year = {2011}, url = {https://www.sei.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/Economics_of_climate_policy/sei-climate-risks-carbon-prices-2011-full.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }