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Risk premia and the social cost of carbon: A review

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  • Kousky, Carolyn
  • Kopp, Robert E.
  • Cooke, Roger M.
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    Abstract

    Abstract Reducing greenhouse gas emissions not only lowers expected damages from climate change but also reduces the risk of catastrophic impacts. However, estimates of the social cost of carbon, which measures the marginal value of carbon dioxide abatement, often do not capture this risk reduction benefit. Risk-averse individuals are willing to pay a risk premium, an additional amount beyond the difference in expected damages, to reduce risks. The authors review methods used and estimates obtained for calculating a risk premium to be included in the social cost of carbon. While more research is needed in this area, work to date suggests a positive, and potentially substantial, risk premium on the social cost of carbon is warranted. --

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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2011-21
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    File URL: http://econstor.eu/bitstream/10419/54197/1/682075493.pdf
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    Bibliographic Info

    Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

    Volume (Year): 5 (2011)
    Issue (Month): 21 ()
    Pages: 1-24

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    Handle: RePEc:zbw:ifweej:201121

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    Related research

    Keywords: climate change; social cost of carbon; risk premium;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Robert Mendelsohn, 2008. "Is the Stern Review an Economic Analysis?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 45-60, Winter.
    2. Richard B. Howarth, 2003. "Discounting and Uncertainty in Climate Change Policy Analysis," Land Economics, University of Wisconsin Press, vol. 79(3), pages 369-381.
    3. Kopp, Robert E. & Golub, Alexander & Keohane, Nathaniel O. & Onda, Chikara, 2011. "The influence of the specification of climate change damages on the social cost of carbon," Economics Discussion Papers 2011-22, Kiel Institute for the World Economy.
    4. David McInerney & Robert Lempert & Klaus Keller, 2012. "What are robust strategies in the face of uncertain climate threshold responses?," Climatic Change, Springer, vol. 112(3), pages 547-568, June.
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    Cited by:
    1. Kopp, Robert E. & Mignone, Bryan K., 2012. "The US government's social cost of carbon estimates after their first two years: Pathways for improvement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(15), pages 1-41.

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