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Increase in carbon prices: analysis of energy-economy modeling

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  • Kazushi Hatase
  • Shunsuke Managi

Abstract

This study examines the mechanisms of social cost of carbon (SCC) and marginal abatement cost (MAC) in climate change modeling. To examine these mechanisms, we observed the shifts in the marginal benefit (MB) and marginal cost (MC) curves of carbon dioxide (CO 2 ) abatement when parameter values are changed. In the observation, we used the DICE model proposed by Nordhaus (A question of balance: weighing the options on global warming policies. Yale University Press, New Haven, 2008 ) changing 24 parameters for the observation. In consequent, firstly, we have found that discount rate is not only one of the parameters which significantly raise the carbon price, that is, other parameters may have significant impact too. Secondly, we have found that there are two patterns in the rise of the SCC, and three patterns in the rise of the MAC. Thirdly, we have found that the difference between the rise of the SCC and MAC is primarily caused by the horizontal MB curve in CO 2 emissions reduction; an upward shift of MC curve raises MAC but never raises the SCC. Thus, the choice of the SCC or MAC may make the change of carbon price different, affecting global warming policy. Copyright Society for Environmental Economics and Policy Studies and Springer Japan 2015

Suggested Citation

  • Kazushi Hatase & Shunsuke Managi, 2015. "Increase in carbon prices: analysis of energy-economy modeling," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(2), pages 241-262, April.
    • Handle: RePEc:spr:envpol:v:17:y:2015:i:2:p:241-262
    DOI: 10.1007/s10018-014-0101-2
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    References listed on IDEAS

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    1. David Pearce, 2003. "The Social Cost of Carbon and its Policy Implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(3), pages 362-384.
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    3. Tol, Richard S. J., 2008. "The Social Cost of Carbon: Trends, Outliers and Catastrophes," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-22.
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    6. Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
    7. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    8. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
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    Citations

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    Cited by:

    1. Richard S.J. Tol, 2018. "The impact of climate change and the social cost of carbon," Working Paper Series 1318, Department of Economics, University of Sussex Business School.
    2. Omid Sabbaghi & Navid Sabbaghi, 2017. "The Chicago Climate Exchange and market efficiency: an empirical analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(4), pages 711-734, October.
    3. Koji Kotani & Makoto Kakinaka, 2017. "Some implications of environmental regulation on social welfare under learning-by-doing of eco-products," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(1), pages 121-149, January.
    4. Richard S. J. Tol, 2024. "Database for the meta-analysis of the social cost of carbon (v2024.0)," Papers 2402.09125, arXiv.org.
    5. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    6. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.

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    More about this item

    Keywords

    Climate change; Energy-economy model; Social cost of carbon; Marginal abatement cost; Sensitivity analysis; Q52; Q54; C68;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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