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A Simple Formula for the Social Cost of Carbon

Author Info

Listed author(s):
  • Inge van den Bijgaart

    (Department of Economics, CentER, TSC, Tilburg University, The Netherlands)

  • Reyer Gerlagh

    (Department of Economics, CentER, TSC, Tilburg University, The Netherlands)

  • Luuk Korsten

    (Tilburg University, The Netherlands)

  • Matti Liski

    (School of Economics, Aalto University, Finland)

Abstract

The social cost of carbon (SCC), commonly referred to as the carbon price, is the monetized damage from emitting one unit of CO2 to the atmosphere. The SCC is typically obtained from large-scale computational Integrated Assessment Models (IAMs) that consolidate interdisciplinary climate research inputs to obtain a carbon price estimate relevant for policy-making. However, the climate economy interactions of IAMs remain inaccessible to scientists in general. Here we develop a simple closed-form formula that captures the key physical and economic determinants of the SCC in the IAMs. For a mainstream IAM, it explains over 99 percent of the within-model variation originating from structural uncertainties; in an inter-model comparison, the structural variation captured by the formula matches closely a SCC distribution of previous SCC estimates. The precise replication of the SCC estimates is strikingly free of details such as those on future policy and technology options, or even carbon concentration levels; the size of the current economy and the emissions-temperature-damage response are the dominant SCC determinants in the IAMs. The structural interpretation given allows decision-makers to disentangle the subjective and structural determinants of the carbon price. Structural uncertainties alone lead to a strongly right-skewed density with median 15 €/tCO2, mean 31 €/tCO2, and more than 5 percent probability for higher than 100 €/tCO2 for year 2015.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.83.

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Date of creation: Oct 2013
Handle: RePEc:fem:femwpa:2013.83
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Keywords: Climate Change; Carbon Price; Integrated Assessment Models; Uncertainty;

Other versions of this item:

Find related papers by JEL classification:
  • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
  • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
  • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The social cost of carbon in one equation
    by Economic Logician in Economic Logic on 2013-12-03 15:45:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:

  1. 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.
  2. Richard S. J. Tol, 2015. "Economic impacts of climate change," Working Paper Series 7515, Department of Economics, University of Sussex.
  3. 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.
  4. Rezai, Armon & Van der Ploeg, Frederick, 2016. "Cumulative Emissions, Unburnable Fossil Fuel and the Optimal Carbon Tax," Ecological Economic Papers 4795, WU Vienna University of Economics and Business.
  5. Motavasseli, Ali, 2016. "Essays in environmental policy and household economics," Other publications TiSEM b32e287e-169b-4e89-9878-1, Tilburg University, School of Economics and Management.
  6. Simon Dietz & Christian Gollier & Louise Kessler, 2015. "The climate beta," GRI Working Papers 190, Grantham Research Institute on Climate Change and the Environment.
  7. van der Ploeg, Frederick & Rezai, Armon, 2017. "Cumulative emissions, unburnable fossil fuel, and the optimal carbon tax," Technological Forecasting and Social Change, Elsevier, vol. 116(C), pages 216-222.
  8. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
  9. Kollenbach, Gilbert, 2017. "On the optimal accumulation of renewable energy generation capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 157-179.
  10. Perino, Grischa & Willner, Maximilian, 2016. "Procrastinating reform: The impact of the market stability reserve on the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 37-52.
  11. 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.
  12. Rick Van der Ploeg & Armon Rezai, 2015. "Intergenerational Inequality Aversion, Growth and the Role of Damages: Occam's rule for the global tax," Economics Series Working Papers OxCarre Research Paper 15, University of Oxford, Department of Economics.

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