What is it about?
We develop a user cost approach to assess the economic costs of different policy options for “using up” the world’s remaining “carbon budget”. This budget is the cumulative amount of anthropogenic CO2 emissions that limit global warming to below 2oC. As shown in Figure 1, the user cost approach treats this global carbon budget, which is currently estimated by the IPPC2 to be 1,010 GtCO2e, as a non-renewable asset that is depleted by annual greenhouse gas (GHG) emissions. Different policies adopted will impact how much GHG are emitted each year by the world economy, and thus how quickly the remaining global carbon budget is depleted. For each emission scenario, it is then possible to estimate the remaining lifetime of the carbon budget and the economic losses associated with this depletion.
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Why is it important?
Such an approach has several advantages. First, it does not require knowledge of the impacts and damages associated with climate change. Instead, the user cost of carbon reflects the scarcity value of an important global environmental service – the value of the assimilative capacity of the earth to absorb a target level of greenhouse gas emissions and temperature change. Unlike the social cost of carbon, such a method does not require extensive economic modeling of the damages arising from climate change, including allowing for the uncertainties surrounding such impacts. Instead, the user cost of carbon can be based on the unit rental value of emissions in terms of their contributions to global GDP and world interest rates. Thus, the user cost of carbon should not be viewed as an alternative to measuring the social cost of carbon, but instead provides an additional useful estimate of the scarcity value associated with different climate change scenarios.
Perspectives
My coauthor and I felt that there is a need to develop a simpler way of assessing different policy options and emission scenarios rather than relying on very complex and data-demanding estimates of the social cost of carbon. By treating the global carbon budget as a "depletable asset", estimating the user cost for various emission scenarios that deplete this asset over time seemed to make sense as a possible alternative. It is relatively straightforward to apply the user cost method to analyze different policy options for controlling GHG emissions and to assess their implications. To illustrate, we employ this method to compare three contrasting policy scenarios for depleting the 2oC global carbon budget from 2010 onwards: • Business as usual (BAU) scenario of global GHG emissions continuing to grow at the same rate (ca. 2% annually) as they have over 2000 to 2010, • Paris Agreement (PA) scenario of the estimated global GHG emissions under the current pledges of the 2015 Paris Climate Change Agreement, and • Declining Emissions (DE) scenario that would postpone indefinitely depletion of the 2oC global carbon budget.
University Distinguished Professor Edward Barbier
Colorado State University
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This page is a summary of: Depletion of the global carbon budget: a user cost approach, Environment and Development Economics, March 2017, Cambridge University Press,
DOI: 10.1017/s1355770x17000055.
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