The social cost of carbon emissions: Seven propositions
Determining the social cost of carbon emissions (SCC) is a crucial step in the economic analysis of climate change policy as the US government’s recent decision to use a range of estimates of the SCC centered at $77/tC (or, equivalently, $21/tCO2) in cost-benefit analyses of proposed emission-control legislation underlines. This note reviews the welfare economics theory fundamental to the estimation of the SCC in both static and intertemporal contexts, examining the effects of assumptions about the typical agent’s pure rate of time preference and elasticity of marginal felicity of consumption, production and mitigation technology, and the magnitude of climate-change damage on estimates of the SCC. We highlight three key conclusions: (i) an estimate of the SCC is conditional on a specific policy scenario, the details of which must be made explicit for the estimate to be meaningful; (ii) the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario; and (iii) the SCC is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission–mitigation diverge on inefficient growth paths. We illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Nicholas Stern, 2010. "Presidential Address Imperfections in the Economics of Public Policy, Imperfections in Markets, and Climate Change," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 253-288, 04-05.
- Arrow Kenneth J, 2007. "Global Climate Change: A Challenge to Policy," The Economists' Voice, De Gruyter, vol. 4(3), pages 1-5, June.
- Tol, Richard S. J. & Anthoff, David, 2010. "Climate Policy under Fat-Tailed Risk: An Application of FUND," Papers WP348, Economic and Social Research Institute (ESRI).
- Hans-Werner Sinn, 2007.
"Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note,"
NBER Working Papers
13453, National Bureau of Economic Research, Inc.
- Hans-Werner Sinn, 2007. "Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note," CESifo Working Paper Series 2083, CESifo Group Munich.
- Ackerman, Frank & Stanton, Elizabeth A., 2012.
"Climate risks and carbon prices: Revising the social cost of carbon,"
Economics - The Open-Access, Open-Assessment E-Journal,
Kiel Institute for the World Economy, vol. 6, pages 1-25.
- Ackerman, Frank & Stanton, Elizabeth A., 2011. "Climate risks and carbon prices: Revising the social cost of carbon," Economics Discussion Papers 2011-40, Kiel Institute for the World Economy.
- William D. Nordhaus, 2011.
"Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model,"
Cowles Foundation Discussion Papers
1826, Cowles Foundation for Research in Economics, Yale University.
- William D. Nordhaus, 2011. "Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model," NBER Working Papers 17540, National Bureau of Economic Research, Inc.
- William D. Nordhaus, 1976.
"Economic Growth and Climate: The Carbon Dioxide Problem,"
Cowles Foundation Discussion Papers
435, Cowles Foundation for Research in Economics, Yale University.
- Nordhaus, William D, 1977. "Economic Growth and Climate: The Carbon Dioxide Problem," American Economic Review, American Economic Association, vol. 67(1), pages 341-46, February.
- Kuik, Onno & Brander, Luke & Tol, Richard S.J., 2009. "Marginal abatement costs of greenhouse gas emissions: A meta-analysis," Energy Policy, Elsevier, vol. 37(4), pages 1395-1403, April.
- Weitzman, Martin L., 2009.
"On Modeling and Interpreting the Economics of Catastrophic Climate Change,"
3693423, Harvard University Department of Economics.
- Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
- Karp, Larry, 2009. "Sacrifice, discounting and climate policy: five questions," CUDARE Working Paper Series 1086, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Graciela Chichilnisky & Geoffrey Heal, 1993.
"Who Should Abate Carbon Emissions? An International Viewpoint,"
NBER Working Papers
4425, National Bureau of Economic Research, Inc.
- Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April.
- William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
- Armon Rezai, 2011. "The Opportunity Cost of Climate Policy: A Question of Reference," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 885-903, December.
- Derek Lemoine & Christian Traeger, 2014. "Watch Your Step: Optimal Policy in a Tipping Climate," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 137-66, February.
- Armon Rezai & Duncan Foley & Lance Taylor, 2012. "Global warming and economic externalities," Economic Theory, Springer, vol. 49(2), pages 329-351, February.
- Dietz, Simon & Hepburn, Cameron, 2013. "Benefit–cost analysis of non-marginal climate and energy projects," Energy Economics, Elsevier, vol. 40(C), pages 61-71.
- Antony Millner & Simon Dietz & Geoffrey Heal, 2013. "Scientific Ambiguity and Climate Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(1), pages 21-46, May.
- Karp, Larry, 2009.
"Sacrifice, discounting and climate policy: five questions,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt1zq431s8, Department of Agricultural & Resource Economics, UC Berkeley.
- Larry S. Karp, 2009. "Sacrifice, Discounting and Climate Policy: Five Questions," CESifo Working Paper Series 2761, CESifo Group Munich.
- Schelling, Thomas C, 1992. "Some Economics of Global Warming," American Economic Review, American Economic Association, vol. 82(1), pages 1-14, March.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:121:y:2013:i:1:p:90-97. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.