Kevin Dayaratna, Ross McKitrick, David Kreutzer. Empirically-Constrained Climate Sensitivity and the Social Cost of Carbon. (April 5, 2016). Available at SSRN: http://ssrn.com/abstract=2759505
Integrated Assessment Models (IAMs) require parameterization of both economic and climatic processes. The latter include Ocean Heat Uptake (OHU) efficiency, which represents the rate of heat exchange between the atmosphere and the deep ocean, and Equilibrium Climate Sensitivity (ECS), or the surface temperature response to doubling of CO2 levels after adjustment of the deep ocean. Due to a lack of adequate data, OHU and ECS parameter distributions in IAMs have been based on simulations from climate models. In recent years, new and sufficiently long observational data sets have emerged to support a growing body of empirical ECS estimates, but the results have not been applied in IAMs. We incorporate a recent observational estimate of the ECS distribution conditioned on observed OHU efficiency into two widely-used IAMs. The resulting Social Cost of Carbon (SCC) estimates are much smaller than those from models based on simulated parameters. In the DICE model the average SCC falls by 30-50% depending on the discount rate, while in the FUND model the average SCC falls by over 80%. The span of estimates across discount rates also shrinks considerably, implying less sensitivity to this parameter choice.