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Climate risks and carbon prices: Revising the social cost of carbon

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  • Ackerman, Frank
  • Stanton, Elizabeth A.

Abstract

The social cost of carbon - or marginal damage caused by an additional ton of carbon dioxide emissions - has been estimated by a U.S. government working group at $21 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of our current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21. In our worst case, it could be almost $900 in 2010, rising to $1,500 in 2050. The most ambitious scenarios for eliminating carbon dioxide emissions as rapidly as technologically feasible (reaching zero or negative net global emissions by the end of this century) require spending up to $150 to $500 per ton of reductions in carbon dioxide emissions by 2050. Using a reasonable set of alternative assumptions, therefore, the damages from a ton of carbon dioxide emissions in 2050 could exceed the cost of reducing emissions at the maximum technically feasible rate. Once this is the case, the exact value of the social cost of carbon loses importance: the clear policy prescription is to reduce emissions a rapidly as possible, and cost-effectiveness analysis offers better insights for climate policy than cost-benefit analysis. --

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2011-40.

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Date of creation: 2011
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Handle: RePEc:zbw:ifwedp:201140

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Keywords: Social cost of carbon; cost-benefit analysis; climate policy; climate economics;

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  1. Hanemann, William Michael, 2008. "What is the economic cost of climate change?," CUDARE Working Paper Series 1071, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  2. Ottmar Edenhofer , Brigitte Knopf, Terry Barker, Lavinia Baumstark, Elie Bellevrat, Bertrand Chateau, Patrick Criqui, Morna Isaac, Alban Kitous, Socrates Kypreos, Marian Leimbach, Kai Lessmann, Bertra, 2010. "The Economics of Low Stabilization: Model Comparison of Mitigation Strategies and Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  3. Terry Barker and S. Serban Scrieciu, 2010. "Modeling Low Climate Stabilization with E3MG: Towards a 'New Economics' Approach to Simulating Energy-Environment-Economy System Dynamics," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  4. Martin L. Weitzman, 2012. "GHG Targets as Insurance Against Catastrophic Climate Damages," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 221-244, 03.
  5. repec:aen:journl:2010se1_low_stabilization-a06 is not listed on IDEAS
  6. 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.
  7. Hanemann, W. Michael, 2008. "What is the Economic Cost of Climate Change?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9g11z5cc, Department of Agricultural & Resource Economics, UC Berkeley.
  8. Detlef Vuuren & Jason Lowe & Elke Stehfest & Laila Gohar & Andries Hof & Chris Hope & Rachel Warren & Malte Meinshausen & Gian-Kasper Plattner, 2011. "How well do integrated assessment models simulate climate change?," Climatic Change, Springer, vol. 104(2), pages 255-285, January.
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Cited by:
  1. Simon Dietz, 2011. "The treatment of risk and uncertainty in the US Social Cost of Carbon for Regulatory Impact Analysis," Grantham Research Institute on Climate Change and the Environment Working Papers 54, Grantham Research Institute on Climate Change and the Environment.
  2. Rick Van der Ploeg & Armon Rezai, 2013. "Abandoning Fossil Fuel: How fast and how much?," Economics Series Working Papers OxCarre Research Paper 12, University of Oxford, Department of Economics.
  3. Duncan Foley & Lance Taylor & Armon Rezai, 2013. "The Social Cost of Carbon Emissions," INET Research Notes 28, Institute for New Economic Thinking (INET).
  4. Frank Ackerman & Elizabeth Stanton & Ramón Bueno, 2013. "Epstein–Zin Utility in DICE: Is Risk Aversion Irrelevant to Climate Policy?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 56(1), pages 73-84, September.
  5. Chris Hope, 2013. "Critical issues for the calculation of the social cost of CO 2: why the estimates from PAGE09 are higher than those from PAGE2002," Climatic Change, Springer, vol. 117(3), pages 531-543, April.
  6. Greasley, David & Hanley, Nicholas & Kunnas, Jan & McLaughlin, Eoin & Oxley, Les & Warde, Paul, 2012. "How Environmental Pollution from Fossil Fuels can be included in measures of National Accounts and Estimates of Genuine Savings," Stirling Economics Discussion Papers 2012-16, University of Stirling, Division of Economics.
  7. R. Warren & J. Lowe & N. Arnell & C. Hope & P. Berry & S. Brown & A. Gambhir & S. Gosling & R. Nicholls & J. O’Hanley & T. Osborn & T. Osborne & J. Price & S. Raper & G. Rose & J. Vanderwal, 2013. "The AVOID programme’s new simulations of the global benefits of stringent climate change mitigation," Climatic Change, Springer, vol. 120(1), pages 55-70, September.
  8. Dietz, Simon, 2011. "The treatment of risk and uncertainty in the US social cost of carbon for regulatory impact analysis," Economics Discussion Papers 2011-30, Kiel Institute for the World Economy.
  9. Rick Van der Ploeg, 2013. "Untapped Fossil Fuel and the Green Paradox: A classroom calibration of the optimal carbon tax," Economics Series Working Papers OxCarre Research Paper 11, University of Oxford, Department of Economics.
  10. Foley, Duncan K. & Rezai, Armon & Taylor, Lance, 2013. "The social cost of carbon emissions: Seven propositions," Economics Letters, Elsevier, vol. 121(1), pages 90-97.
  11. Jonathan M. Harris, 2013. "Green Keynesianism: Beyond Standard Growth Paradigms," GDAE Working Papers 13-02, GDAE, Tufts University.
  12. Pycroft, Jonathan & Vergano, Lucia & Hope, Chris & Paci, Daniele & Ciscar, Juan Carlos, 2011. "A tale of tails: Uncertainty and the social cost of carbon dioxide," Economics Discussion Papers 2011-36, Kiel Institute for the World Economy.
  13. Dietz, Simon, 2012. "The treatment of risk and uncertainty in the US social cost of carbon for regulatory impact analysis," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(18), pages 1-12.
  14. Armon Rezai & Rick Van der Ploeg, 2014. "Robustness of a Simple Rule for the Social Cost of Carbon," CESifo Working Paper Series 4703, CESifo Group Munich.
  15. Silverstein, David N., 2011. "Using a harmonized carbon price framework to finance the Green Climate Fund," MPRA Paper 35280, University Library of Munich, Germany.

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