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The influence of the specification of climate change damages on the social cost of carbon

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  • Kopp, Robert E.
  • Golub, Alexander
  • Keohane, Nathaniel O.
  • Onda, Chikara

Abstract

Drawing upon climate change damage functions previously proposed in the literature that we have calibrated to a common level of damages at 2.5 C, we examine the effect upon the social cost of carbon (SCC) of varying the specification of damages in a DICE-like integrated assessment model. In the absence of risk aversion, all of the SCC estimates but one agree within a factor of two. The effect of varying calibration damages is mildly sublinear. With a moderate level of risk aversion included, however, the differences among estimates grow greatly. By combining elements of different damage specifications and roughly taking into account uncertainty in calibration, we have constructed a composite damage function that attempts to approximate the range of uncertainty in climate change damages. In the absence of risk aversion, SCC values calculated with this function are in agreement with the standard quadratic DICE damage function; with a coefficient of relative risk aversion of 1.4, this damage function yields SCC values more than triple those of the standard function.

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  • Kopp, Robert E. & Golub, Alexander & Keohane, Nathaniel O. & Onda, Chikara, 2011. "The influence of the specification of climate change damages on the social cost of carbon," Economics Discussion Papers 2011-22, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:201122
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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. Ackerman, Frank & Stanton, Elizabeth A., 2012. "Climate risks and carbon prices: Revising the social cost of carbon," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-25.
    4. Crost, Benjamin & Traeger, Christian P., 2013. "Optimal climate policy: Uncertainty versus Monte Carlo," Economics Letters, Elsevier, vol. 120(3), pages 552-558.
    5. repec:spr:jenvss:v:7:y:2017:i:4:d:10.1007_s13412-017-0436-7 is not listed on IDEAS
    6. McCubbin, Donald & Sovacool, Benjamin K., 2013. "Quantifying the health and environmental benefits of wind power to natural gas," Energy Policy, Elsevier, vol. 53(C), pages 429-441.
    7. Newbold, Stephen C. & Marten, Alex L., 2014. "The value of information for integrated assessment models of climate change," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 111-123.
    8. Wiser, Ryan & Bolinger, Mark & Heath, Garvin & Keyser, David & Lantz, Eric & Macknick, Jordan & Mai, Trieu & Millstein, Dev, 2016. "Long-term implications of sustained wind power growth in the United States: Potential benefits and secondary impacts," Applied Energy, Elsevier, vol. 179(C), pages 146-158.
    9. Moritz A. Drupp, 2018. "Limits to Substitution Between Ecosystem Services and Manufactured Goods and Implications for Social Discounting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 135-158, January.
    10. Jensen, Svenn & Traeger, Christian P., 2014. "Optimal climate change mitigation under long-term growth uncertainty: Stochastic integrated assessment and analytic findings," European Economic Review, Elsevier, vol. 69(C), pages 104-125.
    11. Drupp, Moritz A. & Hänsel, Martin C., 2018. "Relative prices and climate policy: How the scarcity of non-market goods drives policy evaluation," Economics Working Papers 2018-01, Christian-Albrechts-University of Kiel, Department of Economics.
    12. Elisabeth J. Moyer & Mark D. Woolley & Nathan J. Matteson & Michael J. Glotter & David A. Weisbach, 2014. "Climate Impacts on Economic Growth as Drivers of Uncertainty in the Social Cost of Carbon," The Journal of Legal Studies, University of Chicago Press, vol. 43(2), pages 401-425.
    13. 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.
    14. Barbose, Galen & Wiser, Ryan & Heeter, Jenny & Mai, Trieu & Bird, Lori & Bolinger, Mark & Carpenter, Alberta & Heath, Garvin & Keyser, David & Macknick, Jordan & Mills, Andrew & Millstein, Dev, 2016. "A retrospective analysis of benefits and impacts of U.S. renewable portfolio standards," Energy Policy, Elsevier, vol. 96(C), pages 645-660.
    15. 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.
    16. Robert Kopp & Bryan Mignone, 2013. "Circumspection, reciprocity, and optimal carbon prices," Climatic Change, Springer, vol. 120(4), pages 831-843, October.
    17. Shindell, Drew T., 2013. "The social cost of atmospheric release," Economics Discussion Papers 2013-56, Kiel Institute for the World Economy (IfW).
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    19. Kopp, Robert E. & Mignone, Bryan K., 2012. "The US government's social cost of carbon estimates after their first two years: Pathways for improvement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-41.
    20. Arvaniti, Maria, 2016. "Uncertainty, Extreme Outcomes and Climate Change: a critique," CERE Working Papers 2016:11, CERE - the Center for Environmental and Resource Economics.

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    Keywords

    Climate change; social cost of carbon;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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