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The social cost of carbon in a non-cooperative world

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  • Hambel, Christoph
  • Kraft, Holger
  • Schwartz, Eduardo

Abstract

The recent literature has derived simple formulas for the Social Cost of Carbon (SCC) that are easy to interpret, but that only apply to the global economy. This is an issue since international transfers to sustain the global optimum with the same carbon price for all countries are still lacking after thirty years of climate summits. The main research objective of our paper is to obtain tractable analytical and interpretable formulas for the SCC, the optimal carbon taxes, and the optimal consumption-abatement strategies in a non-cooperative world. We find that the optimal taxes are proportional to national GDP and can be decomposed into a domestic and a foreign component where the latter stems from trade. Besides, heterogeneity in country-specific damage functions together with the size of international trade significantly affects the regional distribution of the SCC. Consequently, trade can also affect the total amount of carbon dioxide emitted into the atmosphere.

Suggested Citation

  • Hambel, Christoph & Kraft, Holger & Schwartz, Eduardo, 2021. "The social cost of carbon in a non-cooperative world," Journal of International Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:inecon:v:131:y:2021:i:c:s0022199621000672
    DOI: 10.1016/j.jinteco.2021.103490
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    2. Moritz A. Drupp & Frikk Nesje & Robert C. Schmidt, 2022. "Pricing Carbon," CESifo Working Paper Series 9608, CESifo.
    3. Yongyang Cai & Khyati Malik & Hyeseon Shin, 2023. "Dynamics of Global Emission Permit Prices and Regional Social Cost of Carbon under Noncooperation," Papers 2312.15563, arXiv.org, revised Apr 2024.
    4. Zaiter, Issa & Ramadan, Mohamad & Bouabid, Ali & El-Fadel, Mutasem & Mezher, Toufic, 2023. "Potential utilization of hydrogen in the UAE's industrial sector," Energy, Elsevier, vol. 280(C).

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    More about this item

    Keywords

    Climate change economics; Carbon abatement; Non-cooperative game; Differential game; Trade; DICE;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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