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The "Social Cost of Carbon" Made Simple

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  • Steve Newbold
  • Charles Griffiths
  • Christopher C. Moore
  • Ann Wolverton
  • Elizabeth Kopits

Abstract

The “social cost of carbon” (SCC) is the present value of the future stream of damages from one additional ton of carbon emissions in a particular year. This paper develops a simple model for calculating the SCC and compares estimates of the SCC under certainty and uncertainty. Our model includes the key ingredients shared by several of the more complex integrated assessment models in the climate economics literature, but is designed to be more transparent and easier to use by decision-makers and non-specialists. We conduct a series of sensitivity analyses to examine the influences of several key parameters in the deterministic case. We also conduct a formal uncertainty analysis using Monte Carlo simulation, which shows that the certainty-equivalent SCC can be substantially larger than the expected value of the SCC. We explain that this difference arises due to the combined effects of uncertainty and risk aversion. Finally, we compare the present value of benefits estimated using the SCC to the compensating variation of consumption in the initial period for a wide range of hypothetical emission reduction policies.- Submitted August, 2010; Resubmitted May, 2011

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Bibliographic Info

Paper provided by National Center for Environmental Economics, U.S. Environmental Protection Agency in its series NCEE Working Paper Series with number 201007.

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Length: 55 pages
Date of creation: Aug 2010
Date of revision: Aug 2010
Handle: RePEc:nev:wpaper:wp201007

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Keywords: climate change; social cost of carbon; integrated assessment model;

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References

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  1. Anthoff, David & Tol, Richard S. J. & Yohe, Gary W., 2009. "Discounting for Climate Change," Economics Discussion Papers 2009-15, Kiel Institute for the World Economy.
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Citations

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Cited by:
  1. Kousky, Carolyn & Kopp, Robert E. & Cooke, Roger, 2011. "Risk premia and the social cost of carbon: A review," Economics Discussion Papers 2011-19, Kiel Institute for the World Economy.
  2. Richard S.J. Tol, 2012. "Targets for Global Climate Policy: An Overview," Working Paper Series 3712, Department of Economics, University of Sussex.
  3. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
  4. Kopp, Robert E. & Golub, Alexander & Keohane, Nathaniel O. & Onda, Chikara, 2012. "The influence of the specification of climate change damages on the social cost of carbon," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(13), pages 1-40.
  5. Céline Antonin & Thomas Mélonio & Xavier Timbeau, 2012. "L'epargne nette ré-ajustée," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 259-286.
  6. Wesley R. Brooks & Stephen C. Newbold, 2013. "Ecosystem damages in integrated assessment models of climate change," NCEE Working Paper Series 201302, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Mar 2013.
  7. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS

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