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Social Cost of Forcing: A Basis for Pricing All Forcing Agents

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  • Rautiainen, Aapo
  • Lintunen, Jussi

Abstract

An efficient climate policy is based on cost-benefit analysis (CBA) and equates marginal abatement costs across all forcing agents affecting climate change. In CBA, the agents' contributions to radiative forcing (RF) must be consistently priced (i.e. the social cost of RF, occurring at a specific time, must be the same regardless of the agent causing it). We present a concept that enables doing so. The Social Cost of Forcing (SCF) is the monetary value of the social damage caused by marginal RF at a given instant (Wm−2). Any forcing agent whose temporal decay profile and radiative efficiency are known can be priced based on it. Prices obtained for distinct agents are consistent in CBA, as long as the same SCF and discounting assumptions are applied. Hence, the SCF is a concise way to communicate social cost information: mutually consistent prices for any set of forcing agents can be obtained based on a single Integrated Assessment Model output, the SCF. We explain the theoretical foundations of the concept and illustrate its practical applications with two examples: (1) we derive SCF-based prices for CO2 and CH4, and (2) we estimate the social cost of albedo changes in a boreal forest stand.

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  • Rautiainen, Aapo & Lintunen, Jussi, 2017. "Social Cost of Forcing: A Basis for Pricing All Forcing Agents," Ecological Economics, Elsevier, vol. 133(C), pages 42-51.
    • Handle: RePEc:eee:ecolec:v:133:y:2017:i:c:p:42-51
    DOI: 10.1016/j.ecolecon.2016.11.014
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    Cited by:

    1. Jussi Lintunen & Aapo Rautiainen & Jussi Uusivuori, 2022. "Which Is more Important, Carbon or Albedo? Optimizing Harvest Rotations for Timber and Climate Benefits in a Changing Climate," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 134-160, January.
    2. Christian Azar & Jorge García Martín & Daniel JA. Johansson & Thomas Sterner, 2023. "The social cost of methane," Climatic Change, Springer, vol. 176(6), pages 1-22, June.
    3. Rørstad, Per Kristian, 2022. "Payment for CO2 sequestration affects the Faustmann rotation period in Norway more than albedo payment does," Ecological Economics, Elsevier, vol. 199(C).
    4. Lintunen, Jussi & Rautiainen, Aapo, 2021. "On physical and social-cost-based CO2 equivalents for transient albedo-induced forcing," Ecological Economics, Elsevier, vol. 190(C).

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