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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
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    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 risk premium on the social cost of carbon is warranted. --

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2011-19.

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    Date of creation: 2011
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    Handle: RePEc:zbw:ifwedp:201119

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

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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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