Social Cost of Carbon and commitments for climate: some avenues for an environmental economic accounting

Enriching national accounts with environmental sustainability indicators is an issue which has not, at this stage, received a clear and shared operational solution. The sticking point is the difficulty to express environmental damages in monetary terms that are commensurable with the GDP. For the particular case of climate, another possible approach consists in fixing a ex ante target of greenhouse gas emission reductions at a given horizon, and measuring the required effort to reach this target in an equitable manner, on the basis of our knowledge of decarbonization technologies costs. The effort, defined as such, corresponds to an optimal climate spending; spending in the broader sense of the term, which can be implemented by all economic agents (public and private).

We apply here this methodology to France, which has fixed a carbon neutrality target in 2050. According to the model described here, reaching such target would require, in our central scenario, to raise the climate spending to 4.5% of GDP every year until 2050 from the current 1.9%. A sensitivity analysis suggests that this optimal climate spending can vary from 3.4% to 6.9% of GDP, depending on the assumptions made on decarbonization technologies efficiency.

Such sensitivity to the model assumptions imply that those figures should not be put on the same level as usual statistical variables, directly derived from the observation of the current state of the economy. They however shed light on a true fact: the one of a commitment for climate, whose order of magnitude in cumulated terms until 2050 would be of 150% of the current annual GDP in our central scenario, or 85% of GDP if we consider only the deviation from a situation where the current climate effort is maintained over time. One can also derive from those figures an estimation of the social price of carbon and our findings are in line with the results of the Quinet commission in 2019. Theses carbon price trajectory can themselves feed into other indicators, such as a monetary valuation of past emissions or an indicator of net saving adjusted from the social cost of greenhouse gas emissions.