Carleton, Tamma and Greenstone, Michael, Updating the United States Government’s Social Cost of Carbon (January 14, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-04, Available at SSRN: https://ssrn.com/abstract=3764255
Calculating the Climate Reciprocity Ratio for the US
A key question in the application of the Social Cost of Carbon (SCC) in benefit-cost analysis (BCA) of federal climate change regulations is how to treat the benefits to other countries of reducing emissions within the US. Traditionally, federal BCAs focus on domestic costs and benefits as federal policymakers are elected or appointed to serve US citizens. Climate change, however, is uniquely global in nature. Just as one ton of CO2 reduced in the US benefits citizens of other countries, one ton of CO2 reduced in other countries benefits US citizens. The Obama administration considered global benefits in its application of the SCC, while the Trump administration only considered domestic benefits.
A leading argument for the use of a global SCC has been the reciprocal effect of climate action in the US on the behavior of other countries. US commitments to reduce emissions will likely be met with commitments by others to do the same, and emission reductions in other countries will benefit citizens of the US. With the negotiation and adoption of the Paris Agreement, we now have an evidence base upon which to evaluate this argument. One hundred and eighty-nine countries have ratified or otherwise formally adopted the Paris Agreement and through it the majority have made emission reduction commitments. In this paper, we quantify the emissions impact of these commitments to calculate the US “Climate Reciprocity Ratio” (CRR)—how many tons other countries committed to reduce for every ton pledged by the US. We find a CRR of between 6.1 and 6.8. This means the benefit to US citizens of reducing a ton of CO2 within the US is roughly comparable to the global SCC, if adjusted to account for the reciprocal reduction that US action prompts in other countries. The CRR provides an empirical rationale for the consideration of global benefits in climate change-related BCA.