Climate change & energy

The Interdepartmental Group on the Social Cost of Carbon (IGSCC)

A Defra-chaired Inter-departmental Group on the social cost of carbon (IGSCC) was set up in October 2003 to take forward the review of the social cost of carbon (SCC) following the international seminar of July 2003.

The IGSCC is the main discussion and stakeholder forum within Government on the social cost of carbon, seeking to develop agreed, collective economic advice on the use of monetary benchmarks for the marginal damage costs of greenhouse gas emissions. The group's ultimate aim is to produce a set of SCC estimates and related advice on their application to policy assessment that commands support from experts, and that group members are prepared to collectively recommend to Ministers. The group aims to make public these recommendations together with the revised Climate Change Programme (CCP) by summer 2005.

Research

In January 2004 the group commissioned two research projects aimed at improving the available SCC estimates, to understand better the uncertainty that surrounds them, and to explore how best they could be applied to policy assessment.

In particular:

  • A research consortium led by the Stockholm Environment Institute and including AEA Technology Environment, the Centre for Policy Modelling at Manchester Metropolitan University, the University of Hamburg, Imperial College and Metroeconomica is carrying out a study of the SCC with focus on exploring the nature of uncertainties and the extent of consensus around both central estimates and the range of estimates. Possible modelling developments have been explored as part of this analysis.
  • A research consortium led by AEA Technology Environment and including the Stockholm Environment Institute, the University of Hamburg and Metroeconomica is assessing how best to incorporate SCC estimates in relevant decision making contexts, given the uncertainty which affects monetisation of global damage.

The two reports have been published:

Interim view on the use of SCC estimates in policy assessment

Pending the outcome of the research projects and longer term review, the IGSCC has taken an interim view of the recommendations of the GES paper.

The IGSCC recognises that recent research on the subset of impacts that are currently covered by Integrated Assessment Models (IAMs), and which in turn provide the basis for estimates of the SCC, would tend to suggest lower SCC values than those recommended by the GES paper. On the other hand, the IGSCC is aware that taking into account types of impacts not currently included by IAMs will tend to increase valuations of the SCC. There are therefore issues about how to regard the most recent estimates from IAMs and of how to account for the areas of omission.

In these circumstances, the IGSCC suggests that an approach that emphasises sensitivity analysis should be adopted when making use of SCC values in policy assessment. In particular, it is suggested that, pending the completion of the current review, the following steps could be taken when using SCC figures in policy assessment:

  • First of all, analysts should ensure that all the relevant costs and (non carbon) benefits from the project/programme/policy have been clearly identified and assessed as far as possible. This should be part of appraisal best practice as laid out by the Green Book and the RIA guidance.
  • Secondly, analysts should consider whether the overall balance of costs and benefits is sensitive to the full range of illustrative values recommended by the GES paper, i.e. whether valuing carbon benefits alternatively at £ 35 tC or at 140 tC switches the balance of costs and benefits for the project/programme/policy under consideration.
  • Special attention should be employed in assessing the case of those policy actions for which the balance of costs and benefits changes depending on whether the lower bound or the upper bound SCC estimate is used. It will be important, in such cases, to establish the point at which such switching occurs, and for the case for the project/programme/policy to be based on a full assessment of risks, and not simply on the balance of cost/benefit being satisfied on a £70/tC figure.
  • The fact that the SCC values from the GES paper are illustrative and under review should be always emphasised in presenting the results of the analysis, without prejudging what the outcome might be.

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Page last modified: 22 February, 2006
Page published: 01 December, 2005

Department for Environment, Food and Rural Affairs