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The Social Cost of Carbon and the Ramsey Rule

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  • Cees A. Withagen

Abstract

The objective of this paper is to critically assess the use of simple rules for the social cost of carbon (SCC) that employ a rudimentary form of the Ramsey Rule. Two interrelated caveats apply. First, if climate change poses a serious problem, it is hard to justify an exogenous constant growth rate of consumption and GDP, as is done in several contributions by prominent scholars. Second, to derive the optimal SCC one needs full knowledge of the entire future, in spite of the use of popular ways to try to get around this. Moreover, it is shown that some simple rules suffer from inconsistencies in their derivation.

Suggested Citation

  • Cees A. Withagen, 2018. "The Social Cost of Carbon and the Ramsey Rule," CESifo Working Paper Series 7359, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7359
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp7359_0.pdf
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    References listed on IDEAS

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    1. 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.
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    4. Dietz, Simon & Hepburn, Cameron, 2013. "Benefit–cost analysis of non-marginal climate and energy projects," Energy Economics, Elsevier, vol. 40(C), pages 61-71.
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    7. 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.
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    14. Gollier, Christian & Weitzman, Martin L., 2010. "How should the distant future be discounted when discount rates are uncertain?," Economics Letters, Elsevier, vol. 107(3), pages 350-353, June.
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    More about this item

    Keywords

    social cost of carbon; Ramsey Rule;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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