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The treatment of risk and uncertainty in the US social cost of carbon for regulatory impact analysis

  • Dietz, Simon
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    This note considers the treatment of risk and uncertainty in the recently established social cost of carbon (SCC) for analysis of federal regulations in the United States. It argues that the analysis of the US Interagency Working Group on Social Cost of Carbon did not go far enough into the tail of low-probability, high-impact scenarios, and, via its approach to discounting, it mis-estimated climate risk, possibly hugely. Given the uncertainty about estimating the SCC, the note concludes by arguing that there is in fact much to commend an approach whereby a quantitative, long-term emissions target is chosen, and the price of carbon for regulatory impact analysis is then based on estimates of the marginal cost of abatement to achieve that very target.

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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2012-18
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    File URL: http://econstor.eu/bitstream/10419/59036/1/717295052.pdf
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    Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

    Volume (Year): 6 (2012)
    Issue (Month): ()
    Pages: 1-12

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    Handle: RePEc:zbw:ifweej:201218
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    1. Simon Dietz, 2011. "High impact, low probability? An empirical analysis of risk in the economics of climate change," Climatic Change, Springer, vol. 108(3), pages 519-541, October.
    2. 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.
    3. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    4. 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.
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