CHECKING THE PRICE TAG ON CATASTROPHE: THE SOCIAL COST OF CARBON UNDER NON-LINEAR CLIMATE RESPONSE

Research into the social cost of carbon emissions — the marginal social damage from a ton of emitted carbon — has tended to focus on “best guess” scenarios. Such scenarios generally ignore the potential for low-probability, high-damage events, which are critically important to determining optimal climate policy. This paper uses the FUND integrated assessment model to investigate the influence of three types of non-linear climate responses on the social cost of carbon: the collapse of the thermohaline circulation; the dissociation of oceanic methane hydrates; and climate sensitivities above “best guess” levels. We find that incorporating these impacts can increase the social cost of carbon by a factor of 20. Furthermore, our results suggest that the exclusive focus on thermohaline circulation collapse in the non-linear climate response literature is unwarranted, because other potential non-linear climate responses appear to be significantly more costly.