The Value of Statistical Life and the Social Cost of Carbon

Abstract

In light of the consistent inability of the legislative branch to craft and pass legislation that effectively addresses global warming and a series of court cases that compel action on climate change from the executive branch, it appears likely that short and medium-term efforts to address the problem must come in the form of executive branch actions. These executive actions must be justified by cost-benefit analyses. The current metric used to value the benefits of greenhouse gas reduction policies is the Social Cost of Carbon estimate, a number intended to price the damage done to the economy by each ton of CO2. This paper examines the intersection of the Social Cost of Carbon (SCC) estimate and the Value of Statistical Life (VSL) estimate currently used by federal agencies to value mortality risk reductions in policymaking. Two of the three climate damage models underlying the SCC estimate currently use comparable mathematical approaches to model VSL equivalents. The mathematical approaches for modeling VSL estimates in climate damage models have been isolated to reveal how various national VSL values would likely appear if the SCC estimate was subject to a more thorough analysis. Modeled VSL results also then compared with observed VSL results from the literature. While the magnitude of the effect of changes in the VSL remains small except in cases of catastrophic events, the application of modeled VSL estimates in climate damage models used to formulate global climate policy raises new and compelling ethical quandaries. The economic and corresponding ethical assumptions of the application of modeled VSL estimates in climate damage models are discussed within. Particular attention is paid to the effects of the Kaldor-Hicks efficiency criterion, VSL estimates and income inequality, and VSL estimates and catastrophic damages. Alternative points of view such as rights-based policy making and environmental justice insights are briefly taken into account. Finally, international policy implications are discussed and recommendations for the improvement of the SCC process in light of this analysis are advanced.