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Checking the Price Tag on Catastrophe: The Social Cost of Carbon Under Non-linear Climate Response

Author

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  • Ceronsky, Megan
  • Anthoff, David
  • Hepburn, Cameron
  • Tol, Richard S. J.

Abstract

Research into the social cost of carbon emissions — the marginal social damage from a tonne of emitted carbon ? has tended to focus on "best guess" scenarios. Such scenarios generally ignore the potential for low-probability, high-damage events, which are critically important to determining optimal climate policy. This paper uses the FUND integrated assessment model to investigate the influence of three types of low-probability, high-impact climate responses on the social cost of carbon: the collapse of the Atlantic Ocean Meridional Overturning Circulation; large scale dissociation of oceanic methane hydrates; and climate sensitivities above "best guess" levels. We find that incorporating these events can increase the social cost of carbon by a factor of over 3.

Suggested Citation

  • Ceronsky, Megan & Anthoff, David & Hepburn, Cameron & Tol, Richard S. J., 2011. "Checking the Price Tag on Catastrophe: The Social Cost of Carbon Under Non-linear Climate Response," Papers WP392, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp392
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    References listed on IDEAS

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    1. repec:spr:portec:v:3:y:2004:i:2:d:10.1007_s10258-004-0033-z is not listed on IDEAS
    2. Tol, Richard S. J., 2005. "The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties," Energy Policy, Elsevier, vol. 33(16), pages 2064-2074, November.
    3. Tol, Richard S.J., 2005. "Emission abatement versus development as strategies to reduce vulnerability to climate change: an application of FUND," Environment and Development Economics, Cambridge University Press, vol. 10(05), pages 615-629, October.
    4. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 289-317, August.
    5. P. Link & Richard Tol, 2011. "Estimation of the economic impact of temperature changes induced by a shutdown of the thermohaline circulation: an application of FUND," Climatic Change, Springer, vol. 104(2), pages 287-304, January.
    6. P. Michael Link & Richard S. J. Tol, 2004. "Possible economic impacts of a shutdown of the thermohaline circulation: an application of FUND," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 3(2), pages 99-114, September.
    7. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    8. Baranzini, Andrea & Chesney, Marc & Morisset, Jacques, 2003. "The impact of possible climate catastrophes on global warming policy," Energy Policy, Elsevier, vol. 31(8), pages 691-701, June.
    9. Tol, Richard S. J., 2001. "Equitable cost-benefit analysis of climate change policies," Ecological Economics, Elsevier, vol. 36(1), pages 71-85, January.
    10. Kolstad, Charles D., 1994. "George Bush versus Al Gore : Irreversibilities in greenhouse gas accumulation and emission control investment," Energy Policy, Elsevier, vol. 22(9), pages 771-778, September.
    11. Keller, Klaus & Bolker, Benjamin M. & Bradford, D.F.David F., 2004. "Uncertain climate thresholds and optimal economic growth," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 723-741, July.
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    Citations

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    Cited by:

    1. van den Bergh, J.C.J.M. & Botzen, W.J.W., 2015. "Monetary valuation of the social cost of CO2 emissions: A critical survey," Ecological Economics, Elsevier, vol. 114(C), pages 33-46.
    2. Tol, Richard S. J., 2008. "The Social Cost of Carbon: Trends, Outliers and Catastrophes," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-22.
    3. Elizabeth Kopits & Alex L. Marten & Ann Wolverton, 2013. "Moving Forward with Incorporating "Catastrophic" Climate Change into Policy Analysis," NCEE Working Paper Series 201301, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jan 2013.
    4. Fisher, A. C & Le, P. V, 2014. "Climate Policy: Science, Economics, and Extremes," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6tj3j4jb, Department of Agricultural & Resource Economics, UC Berkeley.
    5. Brock, W. & Xepapadeas, A., 2017. "Climate change policy under polar amplification," European Economic Review, Elsevier, vol. 99(C), pages 93-112.
    6. 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, Kiel Institute for the World Economy (IfW), vol. 5, pages 1-24.
    7. Tol, Richard S.J., 2007. "Europe's long-term climate target: A critical evaluation," Energy Policy, Elsevier, vol. 35(1), pages 424-432, January.
    8. Fisher, Anthony, 2014. "Climate Science and Climate Economics," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt746627gz, Department of Agricultural & Resource Economics, UC Berkeley.
    9. 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.
    10. Pushpam Kumar & Uwe A. Schneider, 2008. "Greenhouse gas emission mitigation through agriculture," Working Papers FNU-155, Research unit Sustainability and Global Change, Hamburg University, revised Feb 2008.
    11. P. Link & Richard Tol, 2011. "Estimation of the economic impact of temperature changes induced by a shutdown of the thermohaline circulation: an application of FUND," Climatic Change, Springer, vol. 104(2), pages 287-304, January.
    12. repec:wsi:ccexxx:v:08:y:2017:i:02:n:s2010007817500087 is not listed on IDEAS
    13. Onno J. Kuik & Barbara Bucher & Michela Catenacci & Etem Karakaya & Richard S.J. Tol, 2006. "Methodological aspects of recent climate change damage cost studies," Working Papers FNU-122, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2006.
    14. Louise Kessler, 2015. "Estimating the economic impact of the permafrost carbon feedback," GRI Working Papers 219, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    Keywords

    Social cost of carbon/cost/scenarios/Climate policy/Policy;

    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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