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The “Social Cost of Carbon” Made Simple

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  • Newbold, Stephen
  • Griffiths, Charles
  • Moore, Chris
  • Wolverton, Ann
  • Kopits. Elizabeth

Abstract

The “social cost of carbon” (SCC) is the present value of the future damages from one additional unit of carbon emissions in a particular year. This paper develops a simple model for calculating the social cost of carbon. The model includes the essential ingredients for calculating the SCC at the global scale, and is designed to be transparent and easy to use by decision-makers and non-specialists. We use the model to compare estimates of the SCC under certainty and uncertainty in a Monte Carlo analysis. We find that, due to the combined effects of uncertainty and risk aversion, the certainty-equivalent SCC can be substantially larger than the expected value of the SCC. In our Monte Carlo simulation, the certainty-equivalent SCC corresponds to the 97th percentile of the simulated probability distribution of the deterministic SCC. We also compare the approximate present value of benefits estimated using the SCC to the exact value of compensating variation in the initial period for a wide range of hypothetical emission reduction policies.

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  • Newbold, Stephen & Griffiths, Charles & Moore, Chris & Wolverton, Ann & Kopits. Elizabeth, 2010. "The “Social Cost of Carbon” Made Simple," National Center for Environmental Economics-NCEE Working Papers 280887, United States Environmental Protection Agency (EPA).
    • Handle: RePEc:ags:nceewp:280887
    DOI: 10.22004/ag.econ.280887
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    Cited by:

    1. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    2. 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.
    3. Céline Antonin & Thomas Melonio & Xavier Timbeau, 2012. "L'epargne nette ré-ajustée," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 259-286.
    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. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
    6. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
    7. Domenico Enrico Massimo & Vincenzo Del Giudice & Alessandro Malerba & Carlo Bernardo & Mariangela Musolino & Pierfrancesco De Paola, 2021. "Valuation of Ecological Retrofitting Technology in Existing Buildings: A Real-World Case Study," Sustainability, MDPI, vol. 13(13), pages 1-35, June.
    8. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS
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    10. Kousky, Carolyn & Kopp, Robert E. & Cooke, Roger M., 2011. "Risk premia and the social cost of carbon: A review," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-24.
    11. Kopp, Robert E. & Golub, Alexander & Keohane, Nathaniel O. & Onda, Chikara, 2012. "The influence of the specification of climate change damages on the social cost of carbon," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-40.
    12. Alberini, Anna & Ščasný, Milan & Bigano, Andrea, 2018. "Policy- v. individual heterogeneity in the benefits of climate change mitigation: Evidence from a stated-preference survey," Energy Policy, Elsevier, vol. 121(C), pages 565-575.
    13. Martin, Will & Ivanic, Maros & Mamun, Abdullah, 2021. "Modeling Development Policies with Multiple Objectives," 2021 Conference, August 17-31, 2021, Virtual 315330, International Association of Agricultural Economists.
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    16. Marion Dupoux, 2016. "The land use change time-accounting failure," Working Papers 2016/02, INRA, Economie Publique.
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    18. Ščasný, Milan & Máca, Vojtěch & Melichar, Jan & Rečka, Lukáš, 2015. "Kvantifikace environmentálních a zdravotních dopadů (externích nákladů) z povrchové těžby hnědého uhlí v Severočeské hnědouhelné pánvi v těžebních lokalitách velkolomů Bílina a ČSA a využití vydobytéh," MPRA Paper 66600, University Library of Munich, Germany.
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    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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