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A simple formula for the social cost of carbon

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  • van den Bijgaart, Inge
  • Gerlagh, Reyer
  • Liski, Matti

Abstract

The social cost of carbon (SCC) is the monetized damage from emitting one unit of CO2 to the atmosphere, often obtained from computational Integrated Assessment Models (IAMs). We develop a closed-form formula that approximates the SCC for a general economy, and then explore the capacity of the analytical approach to capture the key SCC drivers and thus to replicate the results of the deterministic IAMs. The formula explains the parameter-driven SCC variation of a mainstream IAM without a systematic bias. The sensitivity analysis identifies and measures the performance limits of the closed-form formulas. We then use the analytic formula to structurally interpret a distribution of SCCs from deterministic IAMs, and develop an analytical breakdown and quantification of how different sets of parameters contribute to the SCC distribution. This allows the user of the formula to evaluate where particular parameter choices tend to place the resulting SCC outcome in the distribution of outcomes for the universe of deterministic IAMs.

Suggested Citation

  • van den Bijgaart, Inge & Gerlagh, Reyer & Liski, Matti, 2016. "A simple formula for the social cost of carbon," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 75-94.
  • Handle: RePEc:eee:jeeman:v:77:y:2016:i:c:p:75-94
    DOI: 10.1016/j.jeem.2016.01.005
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    Cited by:

    1. van der Ploeg, Frederick & Rezai, Armon, 2017. "Cumulative emissions, unburnable fossil fuel, and the optimal carbon tax," Technological Forecasting and Social Change, Elsevier, vol. 116(C), pages 216-222.
    2. Armon Rezai & Frederick Van der Ploeg, 2016. "Intergenerational Inequality Aversion, Growth, and the Role of Damages: Occam's Rule for the Global Carbon Tax," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(2), pages 493-522.
    3. repec:oup:renvpo:v:12:y:2018:i:1:p:4-25. is not listed on IDEAS
    4. Havranek, Tomas & Irsova, Zuzana & Janda, Karel & Zilberman, David, 2015. "Selective reporting and the social cost of carbon," Energy Economics, Elsevier, vol. 51(C), pages 394-406.
    5. repec:eee:foreco:v:26:y:2017:i:c:p:9-29 is not listed on IDEAS
    6. Rick Van der Ploeg & Armon Rezai, 2015. "Intergenerational Inequality Aversion, Growth and the Role of Damages: Occam's rule for the global tax," Economics Series Working Papers OxCarre Research Paper 15, University of Oxford, Department of Economics.
    7. Richard S. J. Tol, 2015. "Economic impacts of climate change," Working Paper Series 7515, Department of Economics, University of Sussex.
    8. van den Bijgaart, Inge & Gerlagh, Reyer & Liski, Matti, 2016. "A simple formula for the social cost of carbon," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 75-94.
    9. Motavasseli, Ali, 2016. "Essays in environmental policy and household economics," Other publications TiSEM b32e287e-169b-4e89-9878-1, Tilburg University, School of Economics and Management.
    10. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.
    11. repec:eee:jeeman:v:87:y:2018:i:c:p:258-274 is not listed on IDEAS
    12. repec:spr:climat:v:147:y:2018:i:1:d:10.1007_s10584-017-2132-8 is not listed on IDEAS
    13. Simon Dietz & Christian Gollier & Louise Kessler, 2015. "The climate beta," GRI Working Papers 190, Grantham Research Institute on Climate Change and the Environment.
    14. Gerlagh, Reyer, 2017. "Generous Sustainability," Ecological Economics, Elsevier, vol. 136(C), pages 94-100.
    15. repec:eee:ecolec:v:146:y:2018:i:c:p:520-535 is not listed on IDEAS
    16. Gerlagh, Reyer & Jaimes, Richard & Motavasseli, Ali, 2017. "Global demographic change and climate policies," Discussion Paper 2017-035, Tilburg University, Center for Economic Research.
    17. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    18. Frederick Ploeg, 2018. "The safe carbon budget," Climatic Change, Springer, vol. 147(1), pages 47-59, March.
    19. Kollenbach, Gilbert, 2017. "On the optimal accumulation of renewable energy generation capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 157-179.
    20. Drupp, Moritz A. & Hänsel, Martin C., 2018. "Relative prices and climate policy: How the scarcity of non-market goods drives policy evaluation," Economics Working Papers 2018-01, Christian-Albrechts-University of Kiel, Department of Economics.
    21. Frederick van der Ploeg, 2017. "The Safe Carbon Budget," OxCarre Working Papers 195, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    22. Perino, Grischa & Willner, Maximilian, 2016. "Procrastinating reform: The impact of the market stability reserve on the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 37-52.

    More about this item

    Keywords

    H23; Q54; Q48; C68; Climate change; Social cost of carbon; Integrated assessment models;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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