Tag Archives: FUND model

Controversies around the Social Cost of Carbon

What is the social cost of carbon? That is,the monetary value of the long-term damages done by greenhouse gas emissions? Frank Ackerman from the Stockholm Environment Institute U.S. Center, recently gave a fascinating talk at the Stockholm Resilience Centre where he presented the widely used FUND-model, an integrated assessment model of climate change that links climate change science with economics. According to Ackerman, the interesting aspect with this model is not only that it is commonly cited by policy-makers in the US, but also that some of its basic assumptions, lead to quite bizarre results. The policy implications can not be overestimated.

As Ackerman notes in the TripleCrisis blog:

True or false: Risks of a climate catastrophe can be ignored, even as temperatures rise? The economic impact of climate change is no greater than the increased cost of air conditioning in a warmer future? The ideal temperature for agriculture could be 17oC above historical levels?

All true, according to the increasingly popular FUND model of climate economics. It is one of three models used by the federal government’s Interagency Working Group to estimate the “social cost of carbon” – that is, the monetary value of the long-term damages done by greenhouse gas emissions. According to FUND, as used by the Working Group, the social cost of carbon is a mere $6 per ton of CO2. That translates into $0.06 per gallon of gasoline. Do you believe that a tax of $0.06 per gallon at the gas pump (and equivalent taxes on other fossil fuels) would solve the climate problem and pay for all future climate damages?

I didn’t believe it, either. But the FUND model is growing in acceptance as a standard for evaluation of climate economics. To explain the model’s apparent dismissal of potential harm, I undertook a study of the inner workings of FUND (with the help of an expert in the relevant software language) for E3 Network. Having looked under the hood, I’d say the model needs to be towed back to the shop for a major overhaul.

A working paper that teases the critique in detail can be found here. To summarize the conclusions for non-economists: the social cost of carbon is way higher than $6 per ton of CO2….